Financing with collateral for so-so credit

10 Replies

Hi everyone,

I'm new here and was wondering if I could solicit some opinions on financing options to keep business growing. I'm avidly reading, listening to podcasts and working on a business plan but keep getting stuck on the financing as that is the major factor that will determine my timeline moving forward.

My credit is not great but not awful (lots of student loans primarily, few late payments, etc.), however I don't think I will qualify for any traditional bank financing. I was a school counselor but am now self employed so proving income is also a challenge. I own two properties (both paid for)-- one is being converted into a multi-unit rental and should bring in about $1416 cash flow per month after costs. The other will be my primary residence in a month or so when rehab is finished. I acquired both of these properties this year so I haven't owned them long.

Does anyone have suggestions for obtaining financing (specifically financing with houses as collateral) to move forward in rehabbing and flipping properties and acquiring rental properties? I'm trying to find a local hard money lender to talk with (no luck yet) and looking into home equity (but proof of income and length of ownership seems problematic). Any other good options I'm overlooking?

Thank you!!

@Tia Rubadeau Depending on how much you're looking for, this may or may not be an option, but I've seen people requesting to fund projects similar to yours on P2P lending sites.

A good start would be put up your homes as collateral. You say you are self-employed and proving income is also a challenge so that means you do not pay taxes in order to provide the lender tax returns. I just don't see where a lender will trust anyone with bad credit and cannot prove income. When you rent out one of your units will you rent to someone who cannot prove income.

Not bashing you, it is a tough life but here in Texas lenders will frown on people that don't pay student loans if it was government money.

Joe Gore

What's your credit actually like? Go to Equifax and you can buy an actual FICO for about $20.

You can probably get the lates cleared. If the student loans are not actually in default, they're fixable, too.

No verifiable income is tough. It will ease somewhat when you have been showing income for the rental for a couple of years.

@Joe Gore

I would love to put my houses up for collateral to secure a loan, but I'm looking for options that would allow me to do this. I do pay taxes--the challenge is that my tax returns from the past two years are as a school counselor (not the most lucrative profession) and this is my first year being self employed. Also, I am not in default on student loans all payments are current I just racked up a lot of debt to earn that Masters degree!

@Tia Rubadeau,

A congratulation on your master's degree. Have you thought about dealing with an HML?

Joe Gore

@Richard C.

I will look into getting my FICO, I haven't checked in awhile but nothing has changed debt-wise and all on time, student loans are being paid as agreed, it just shows that I have a lot of debt. Thanks for the feedback.

@Joe Gore

Thank you : ) wish I had though of real estate investing prior to all that student loan debt haha, live and learn. That's what I'm hoping to do, but I haven't had any luck finding a local HML so I thought I'd put it out here and see if I'm missing any other good financing options. We're really good at finding deals and taking disasters of houses and turning them around quick dues to restoration background, so the best deals we find wouldn't qualify for a bank loan anyway I don't think (fire house, etc.). Anything I've looked at online for financing seems like a scam. I'm attending a local REI club meeting tomorrow and hoping someone there would have a recommendation.

Good day,

When you say you have a few lates, banks should still work with you, but you will pay a higher cost for the loan and/or need more down.

What it sounds like is that your Debt to Income is high and that is the issue.

Refinancing the multifamily that you are going to rent can use the rental contracts for the income, but you usually get 75% of the actual lease value.

Once you have contracts you can probably cash out refi to get money for a down on your next place.

Once you have that maybe flip the next instead of holding it to get more seed cash for your next hold.

HML lenders that I have worked with usually want a short term exit strategy, but I know there is a great podcast that should explain HML better.

As with any of this, just make sure that your real estate investing fundamentals are all correct.

Hope this helps. Keep at it.


@Darnell Kramer

Thanks for the great suggestions! You are correct with the high debt to income, after a few years of being self-employed I will be in better shape there but I'd like to keep moving forward with my real estate goals during that time if possible. I am interested in rentals and rehab/flip houses and I was thinking along the same lines of finding a few properties to flip to generate the money needed. The podcast on HML was great, I think this type of loan definitely needs careful consideration but I have my eye on a flip that would be an ideal candidate for a HML (low cost property in need of rehab, great in demand desirable area, high resale potential ), now just to find a local lender or other short term financing...

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