4 Ways to Manage Bad Credit: A Guide For Real Estate Investors

4 Ways to Manage Bad Credit: A Guide For Real Estate Investors

3 min read
Larry Alton

Larry is an independent, full-time writer and consultant. His writing covers a broad range of topics including business, investment, and technology.

Larry started his career with Demand Media. There he contributed to and edited nearly every type of business-related content from real estate investing to software and digital media.
Since then, Larry has worked as an independent, full-time writer and consultant. His writing covers a broad range of topics including business, investment and technology. His contributions include top-tier publications like Entrepreneur Media, TechCrunch, and Inc.com.

When he is not writing, Larry assists both entrepreneurs and mid-market businesses in optimizing strategies for growth, cost cutting, and operational optimization.

As an avid real estate investor, Larry cut his teeth in the early 2000s buying land and small single family properties. He has since acquired and flipped over 30 parcels and small homes across the United States. While Larry’s real estate investing experience is a side passion, he will affirm his experience and know-how in real estate investing is derived more from his failures than his successes.

Larry graduated in the top 2% from Iowa State University’s Ivy School of Business Management.

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In order to be a successful real estate investor – at least in the beginning stages – most people need access to outside capital in order to finance deals. While this isn’t a problem for many investors, it can be a point of contention for those with bad credit. If you fall into this latter category, do you know your options?

Exploring Your Investment Options

Unfortunately, bad credit affects multiple areas of your life. In addition to hurting your chances of obtaining something like a car loan, it can also hold you back from getting the funds you need to invest in real estate in your professional life.

Thankfully, bad credit doesn’t have to be a death sentence. While it’s certainly not ideal, real estate investing could still be in your future – you’ll just have to go about it differently. Here are a few options:

1. Credit Repair

The first thing you need to do is look into repairing your credit. While you’ll have trouble removing accurate negative marks on your credit report, it’s entirely possible that there are errors on your report that are dragging you down. In fact, research from the Federal Trade Commission shows that 1 in 5 Americans has a mistake on their report.

If you don’t have the time to fix your own credit report, you can hire a service to identify and correct errors for you. A reputable credit repair company will analyze your situation and assist you in getting back on the right path.

2. Seller Financing

Until you get your credit situation cleaned up (it could take months or years), you’ll have to pursue alternative options for financing real estate deals. One popular method is seller financing.

“Seller financing is just what it sounds like: the seller provides the financing,” Brandon Turner explains. “In other words, the owner of the property acts as the bank, and although legal ownership [changes]  hands, the payment is sent directly to the previous owner rather than a bank.”

The benefit of using seller financing is that the seller might not be quite as strict with their vetting efforts and may be willing to work with you even if you have bad credit.

Related: 5 Options for Investing in Real Estate with Bad Credit

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3. Hard Money Loans

While seller financing obviously requires the participation of the seller, hard money loans allow you to invest in a piece of real estate without asking the seller to jump through any hoops.

With a hard money loan, a private lender offers up the money you need to purchase a piece of property, and you repay the lender at a rate they determine. Again, your credit history doesn’t have to factor into this.

4. Wholesaling

Finally, you might look into wholesaling. It’s a quick, no-money-down real estate investing method, which a lot of people have used to get started when they have little cash and/or bad credit.

With wholesaling, you find a house that someone is looking to unload – likely one that needs repairs – and you enter into a contract with the seller that gives you the option of assigning the deal to someone else. You then find someone who wants to buy the house for more than the original contract, and you collect the difference as a fee for your services.

Related: 3 Simple Steps to Significantly Raise Your Credit Score within 12 Months

Don’t Let Bad Credit Hold You Back

Life is certainly easier for those with good credit, but you don’t have to sit on the sidelines and watch everyone else succeed just because your credit is less than stellar. For starters, you need to be proactive and look for opportunities to improve your credit. Secondly, you must be willing to get creative and explore your options on the investment side of things. While a traditional bank loan may be the most convenient route to owning a piece of real estate, who says other methods don’t work just as well in the long run?

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Has credit stood in your way in the past? How have you dealt with it?

Let me know in the comments below!