Real Estate Investing Basics

5 Options for Investing in Real Estate With Bad Credit

Expertise: Landlording & Rental Properties, Real Estate Investing Basics, Personal Finance, Real Estate News & Commentary, Business Management, Real Estate Deal Analysis & Advice, Real Estate Marketing, Mortgages & Creative Financing
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Most people simply don't have the liquid assets to buy investment properties in cash, which is why bank loans are traditionally used. However, for those with bad credit, a loan might not be an option. That doesn't mean you're out of luck, though.

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Here Are 5 Options Worth Investigating

Every situation is unique. Depending on your exact credit score, the type of real estate you’re trying to invest in, and how many connections you have, your path to success will be unique. However, there are a few options everyone should look into.

1. Try to repair your credit.

Before doing anything else, look into repairing your credit. It’s possible that there are mistakes and errors on your report that are dragging you down. Sitting down with a credit repair company could be a smart idea.

“Keep in mind that an experienced and valuable credit repair company will help you not just to improve your credit report by making sure it reflects your accurate credit history, but helps you learn to make better credit decisions in the future,” Lexington Law explains. “This is not a short term fix, and it requires long-term attention to your financial future.”

Related: How to Choose the Smartest Credit Cards to Use for Your Spending Habits

Raising your credit score a few points might be enough to help you land a competitive loan for a real estate investment.

Poor credit score report with pen and keyboard

2. Form a partnership.

Assuming you can't get your credit score up enough to qualify for a traditional loan, you have a few other options. One choice is to form a partnership with someone else. In this partnership, the other person brings the money—either via cash or loan—and you put in the work. The key in a partnership is to clearly outline roles ahead of time and to both do your part.

3. Use a hard money lender.

A hard money lender is simply a person or group that lends money of its own accord. Because they don't have to adhere to regulations and corporate policies, they can choose to lend money to whomever they want. Typically, hard money lenders don't care about credit scores. They analyze individual deals and want to make sure they get their money back in a timely fashion.

4. Crowdsource the funds.

Thanks to the power of the internet and social media, it’s possible to raise large amounts of money in a short period of time. One increasingly popular method of funding real estate deals is to crowdsource the funds.

With crowdsourcing, you create a "campaign" and then ask other people to invest money. Once the deal goes through and reaches certain stages, they then get a specific return on their money. Unlike a bank or hard money lender, where 100 percent of the money comes from a single source, you might have 50 or 100 different private lenders come together to fund a deal.

person holding house key with living room in background

Related: Does Your Credit Score Matter When You Invest in Real Estate?

5. Give wholesaling a shot.

If you really want to get creative, wholesaling might be a good option. It requires zero money but a lot of networking. With wholesaling, you find a seller who wants to get rid of his property but hasn’t yet listed it. You then go out and find a buyer and take a percentage of the sale price. It’s extremely challenging but can also be quite lucrative.

Don’t Take No for an Answer

At the end of the day, there’s always an option. If you study today’s most successful real estate investors, you’ll find that a large percentage of them started from nothing and simply found a way to get their foot in the door. You have to do the same. Don’t take no for an answer and creativity will follow.

What other ways have you found feasible for investing with poor credit?

Leave your input below!

Larry is an independent, full-time writer and consultant. His writing covers a broad range of topics including business, investment and technology. His contributions include
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    Charles Oglesby from Orange County, California
    Replied over 2 years ago
    Great article
    Shawn Ginder Investor from Lititz, PA
    Replied over 2 years ago
    Love that final comment at the end, so true! We found a way to get started and getting our foot in the door, 16 months into our journey have 9 units, with practically no money down of our own, a lot of persistence determination, not giving up after 19 dead ends with lenders until we found someone to say yes and then things started to happen! It can be done! Thanks for sharing the tips!
    Phann Keo from Parker, Texas
    Replied over 2 years ago
    I’m reading through this article and still trying to figure out how to get my foot in the door. Any advices?
    Brent Dildine
    Replied 6 months ago
    I'm a real estate agent in Boise, Idaho. I work with a few builders that are looking for private money investors to form a partnership to fund new spec homes and presold build jobs. My builder is willing to built the spec homes at cost.. then I would list the spec home on the MLS and when it sells, the builder and investor split the profits. The builder is willing to guarantee a 10% annual ROI or 1/2 of profits.. whichever is the greater amount. The build to sell/close is approx 6 mo's. The investor funds 100% of the land and construction cost.. the builder builds the home at his cost... I list the home on the MLS at 6% (3% to selling office). After all commissions, closing costs, and building costs, the builder and investor split profits 50/50 or 10% annual ROI to the investor (whichever is the greater amount). Most projects req approx $400,000. $100K for the building lot and $300K to construct the home. All spec homes are built in highly successful subdivisions where demand is high and homes are selling. Our last investor invested approx $275K and received $22,000 profit in less than 6 mo's total time. That's an 8% ROI but it was in only 6 mo's so amortized annually this investor made approx 16% ROI. Or, if they put their money to work on 2 projects per year, they'd pull approx a 16% ROI. Not bad! The investor is in 1st position so they are very protected. I'm looking for interested investors. Is anyone interested in a partnership like this? If so, please reply and if not, any feedback is welcomed. Thanks!
    Bernadette Fields from Pearland, Texas
    Replied 6 months ago
    Where r you located ?