Mortgages & Creative Financing

3 Ways to Invest in Real Estate With Little to No Credit

Expertise: Business Management, Mortgages & Creative Financing, Landlording & Rental Properties, Real Estate Investing Basics, Personal Finance, Real Estate Deal Analysis & Advice, Commercial Real Estate, Personal Development, Real Estate News & Commentary
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Doesn’t it always seems that banks are willing to lend you money (or a particular type of money) when you don’t really need it?

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When I think back to when I first got out of college, I was having trouble building credit and even getting a credit card, but today I’m solicited for credit cards by banks nonstop. It’s similar with lines of credit too, especially business lines of credit.

So, if your access to capital is limited and you have little to no credit, how can you invest?

Well, there’s a few options.

3 Ways to Invest in Real Estate With Little to No Credit

1. Utilize a different type of capital.

You don’t necessarily have to use traditional financing. For example, years ago, credit cards were issued for people to buy primarily consumer goods, but I was using them to purchase and fix up properties. Then, banks would give me a business line of credit much more easily than a mortgage. So, guess what I was using my business line for? Purchasing and fixing up properties.

Another example is using OPM (Other People’s Money) to invest. By using private money, you’re not using your credit to do deals and you’re limiting your overall risk.


2. Use someone else’s credit.

This can be done in a few ways.

By this, I mean that I’ve joint ventured with people on properties, where we were able to use their credit or status to acquire the real estate. Once, my sister-in-law bought a property with my wife, where we were able to use my sister-in-law’s FHA eligibility. On another deal, I’m using my son’s ability to purchase a home through a joint venture since I have too many units in the eyes of the bank and he doesn’t. After all, it’s about trying to build the family’s overall wealth.

Related: No Money? No Credit? No Real Estate Experience? Read THIS Before You Do Anything Else.

A different example is that of my buddy, who was buying a lot of commercial real estate. Since he previously had a failed business, he used a joint venture partner's credit to get the loans. But he handled all of the acquisitions, fix-ups, and day-to-day management of the student housing he was buying. He still owned a nice percentage of the entities, but none of the loans were in his name.

3. Invest in another way.

Sometimes, we can just invest without needing credit. This can often be done when we take control of an investment without it being in our name. A perfect example of this is the “sandwich lease option," where you lease a property from an owner then turn around and sublease it to someone else. Now you're getting a security deposit and a monthly cash flow on a property you don't even own.

Another way to invest without needing credit is in “subject-to" deals. This time you're taking title to the real estate with the existing loan remaining in place, and the beauty of this is that it's not attached to your credit. What's cooler than having ownership and control and not using your credit?


Cash Flow Investments That Don’t Require Credit

There are some other investments as well that give off cash flow without requiring credit.

The easy one to think of here is notes. The one beautiful thing about buying or investing in a note is that you just need the money. So, whether you’re just starting out with a small amount of money (e.g. $25), using a platform like Lending Club, or you’re purchasing a secured first or second mortgage, you don’t need credit to do so.

Related: The Practical, 3-Step Way to Get Started in Real Estate With No Money

Another one is tax liens. When you go to buy a tax lien, they don't check it either.

A third way is hard money. If you’re lending out money to fellow real estate investors for their rehab deals, I can’t picture the borrower asking to see your credit.

As you can see, there are many ways to invest in real estate without using one’s own personal credit.

So, what are some of your favorite ways?

Let me know with a comment!

Since 2007, Dave Van Horn has served as president and CEO of PPR Note Co., a $150MM+ company managing funds that buy, sell, and hold residential mortgages nationwide. Dave’s expertise is derived from over 30 years of residential and commercial real estate experience as a licensed Realtor, real estate investor, and private lender. In addition to his investments and role at PPR, Dave’s biggest passion is teaching others how to share, build, and preserve wealth. He authored Real Estate Note Investing, an introduction to the note investing business, helping investors enter the “other side” of real estate.
    Ayodeji Kuponiyi Investor from King of Prussia, Pennsylvania
    Replied almost 5 years ago
    I’m glad I stumbled upon this. I’ve been looking into syndicating apartments and looking for ways to acquiring some smaller ones(5-10 units) to build a portfolio for myself & credibility. Raising private funds will be ideal but I don’t have capital to put down right now. Any ideas?
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied almost 5 years ago
    Hi Ayodeji, I think I touched on the subject a bit in the article, but a great way to get started in your scenario is to partner with others who have experience in that arena. When I first started raising private money, I didn’t have any of my own capital to put into larger commercial projects but I wanted to break into the space. I actually ended up raising money for other people first, and essentially was paid to learn how to put together a syndication. Now I’m no longer confined to using my own personal capital for investments. I also recommend putting your efforts towards raising money for charitable causes, this often times build credibility when looking to raise money in the future. Best, Dave
    Curt Smith Rental Property Investor from Clarkston, GA
    Replied almost 5 years ago
    Hi Dave, tnx. You touched it, but Great deals attract funders. If you are in a REIA (or many REIAs) if you find a great apartment or self storage deal I bet you $10 that you’ll find more than the needed investors in your immediate sphere. I recently did this for a really good deal on a mobile home park, assembled 5 members to put up $350k to buy a $1.1M mobile home park. I just re put out the ask for another park and more than that amount contacted me. Most areas are short of good deals, so cash is piling up and looking for a good use, is my view here in Atlanta. BP but more so linkedin real estate groups are crawling with national and international folks looking for deals.
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied almost 5 years ago
    I agree Curt. If you have the deal, the money will follow. Generally speaking, commercial Real Estate (like mobile home parks or apartments) can often times be the easiest thing to raise money for because it’s a simple investment that many people can wrap their head around. It’s tangible, nearly everyone has lived in an apartment, and the model is usually simple. In most cases, an investor/fund raiser can get 70% to 80% bank financing, and then raise private money for the rest, as well as the closing costs and repairs, and that’s it. They can then wait 3 to 5 years, refinance to take the original investors out and now they own the property outright. It’s a great play, makes you wonder why more people don’t move into commercial! Thanks for reading. Best, Dave
    Tomas Chao from Gastonia, North Carolina
    Replied almost 5 years ago
    Thanks for the post. It has given me a starting point and ideas to look at.
    Juliet Salceda from Salt Lake City, Utah
    Replied almost 5 years ago
    Hi Dave Van Horn Great article I found very interesting. I did however have a question in regards to the business line of credit you mentioned how does that differ from a individual unsecured line of credit. And what would the requirements be to apply for a business line of credit.
    Dave Van Horn Fund Manager from Berwyn, PA
    Replied almost 5 years ago
    Hi Juliet, There are secured and unsecured business lines of credit and they’re usually given to an LLC instead of an individual. And I should mention that most lenders prefer entities that have a long history vs. a short one. The requirements vary. You may be required to personally sign and some lines of credit may be able to be attached to a property. Most major banks do these lines of credit and they’re usually happy to give more info on the ins and outs for what you’re looking for. Thanks for reading. Best, Dave
    Kathleen Harrell from Schenectady, New York
    Replied almost 3 years ago
    I just happened to bump into your article here. There are some really good points here. I am new to BP and I have a limited amount to invest so I am researching other avenues of borrowing. I am a retiree and have limited income at the moment. I have been tossing the Hard Money Lender idea around as a jumping off point. My credit score is very good but I don’t think I would be able to go the ” Traditional Loan” route. I am building my “Dream Team” also and looking into doing some Real Estate classes and obtain a license. As you can see I do have the drive but I would appreciate some input on how to proceed with a Hard Money Lender. Pros and cons and any thoughts welcomed at this point.