BiggerPockets

Does anyone know anything about, or have experience with being a " credit partner" ? I saw an ad for it posted on Craigslist, and was just wondering if anyone had any knowledge on the subject.

Thanks

This sounds like a " turnkey" investment opportunity, but what happens when you evict your potential credit challenged buyer becuase they don't make their payments? You are now responsible for the mortgage and no telling how long it will take to get someone else into the program as a potential buyer? Is my assumption correct or am I missing something?

I know of realtytrust.org and their owner Mathias Pruestel. I am a credit partner with them and will soon be an investor.

I use credit partners all the time for my real estate investing. Basically the credit partner buys the house and the tenant lives in and leases the house it until they can buy it outright. My program helps the tenant improve their credit scores WITHOUT credit repair.

The credit partner receives cash at closing and a monthly cash flow. My typical credit investor receives about $30k over three years for just using their credit - no money invested.

Are there risks? Sure. As has been pointed out the tenant can move out, damage the place and the value of the house can fall. Life happens!! However, with my contract the tenant loses big time as I ask for at least 5% in closing costs and 2 payments upfront (plus being sued for loss of payments and repairs). I use the unused payments to cover the mortgage while we look for another tenant. My contract makes it easy to evict the tenant. However, that is the safety net. I aim to get 95% of the tenants to buy the house.

As for a 'credit challenged' buyer one thing people forget is that you just don't let anybody be the tenant. Do the background checks (don't rely on a credit report alone), get the references and use your common sense. As long as the tenant looks like an owner and puts up the cash then take them in. If not let them go on their way and they can rent from somebody else. One thing I do with the tenant is I treat them like a home owner. They get to claim the tax write off - just like a home owner - and they get a share in the house appreciation - just like a home owner - and they get to maintain the house - just like a home owner (I make sure there is a home warranty to help them out).

Good luck!

Greg Shepherd

Thanks for the reply Greg, that helps.

I find it a shame that there is a so much judgment of a persons character around their credit score. I have so many people in houses that have 'bad' credit but are honest, hard working and good people to know.

With USA real estate in question (I see REI is based in London) USA mortgage lenders limit investors to 4 investment mortgages plus their own residence. Some lenders (and indeed the Magix program) allow more but generally the limit is 4. That's not too many (but it is kind of sensible - if you want so many go buy an apartment complex). I'm in Dallas and with so the over supply of houses and so many people with 'bad' credit there is great investment opportunities. An empty house gets filled and a would be buyer puts his family in a house. I help people who the mortgage lenders turn their back on.

At least I don't make promises to my credit partners like " you're on your road to financial freedom" . I don't make them buy an ebook up front before I share information with them. They see the buyers information and they go and visit the house. If they don't like the deal they don't do it. I tell them to use the investment as part of their overall investment portfolio strategy. I give them more control than the mutual fund managers who gamble with their 401k everyday!

GS

A few too many assumptions or just bad info.

1. I live in London. I was not commenting on the UK mortgage market. I have been investing in the US market since 1983.

2. The limits are generally not set at 4. More common is 10 mortgages per borrower. Some lenders go much higher. The 10 mortgage limit is mostly connected to the resale market. If lenders hold the loans on their own loan book there is not legal limit based on count. There might be a lender policy. Banks are limited to lending more than 10% of their capital to any one borrower.

3. The suggestion to go buy an apartment complex is more of a red herring than helpful.

In the same way that you made assumptions or were misinformed you will have credit lenders who do not know what they are really doing. The risk is compounded when the RE investor is making bad assumptions as to what is really going on.

On the more general topic...

What you are ignoring is the risk to the credit partner. You should know the risks so lets assume you are just not stating them.

Almost all of the risk comes from hick ups. If you are going to step in and make the payments when the tenant does not then fine. Even that is risky as there is a limit to what you could cover at any one time.

Good people who have jobs and bad credit have had issues in the past. Other good people who have jobs do not have credit issues. Maybe stuff happened that was out of their control (medical being a simple example). Or maybe they just made bad choices and might repeat the situation in the future.

As a RE investor you are willing to make an informed decision. People who lend their credit to RE investors are not that sophisticated. If they were they would be doing the deals themselves. Hence they rarely fully understand how the loan will impact their credit even if the tenant buyer performs.

John Corey