How to invest with horrible credit

38 Replies

hello everyone. 

I could use some advise.  I'm recently divorced and need to move within the next couple of months. During the divorce my credit got crushed. Had to short sale my house and my x wife got her truck repossessed which was under my name. I was going to rent for two years while I rebuilt credit. Are there any ways to control and    Invest in a property I'm living in then sell for a profit in two years when I'm ready to buy a more suitable house? Or am I pretty much stuck renting until my credit goes up? I appreciate any advice. Thank you!

Your question is difficult to answer, because every scenario is different.  If you make $200K+ a year, even with bad credit, a lender may make a loan.  If you have no assets, low income, and bad credit, a lender is unlikely.   Or, can you possibly find a situation where a seller is very motivated willing to seller finance your the property...again, possibly, but unlikely.

Anything is possible. However generally speaking, having just short sold a home, unlikely to qualify for a loan.

You are better off trying to improve your credit so you can better interest rate.

@Ernie Thivierge   work on your credit and look for sellers who might owner finance.

Might want to go work for an investment company and show them you will put in everything you have to be successful. They will generally have capital and might take a chance on you.

Conventional lenders will probably avoid you like the plague for awhile so I wouldn't count on that avenue.

Also understand with a divorce decree joint credit cards can predate the settlement. So for instance if your wife is supposed to pay and she doesn't the creditors will come after you and ding your credit. It will not matter what the judge ordered. You could go after her in court but the creditors still want their money in the meantime.

Unless you get your name off of the joint accounts then you will be liable. If you have tons of debt you can't recover from or will take 3 to 5 years you might be better of filing chapter 7 bankruptcy and blowing everything out. With a chapter 13 your credit stays frozen in the crapper while you are paying debts back so no real benefit there.

No legal advice given. 

Sandwich Lease Options.  No credit needed.

you do not have to BUY real estate to make money in RE, You CONTROL real estate! you don't need credit or a good score. You need brains and someone to teach you the ropes. 

Originally posted by @Ernie Thivierge :

hello everyone. 

I could use some advise.  I'm recently divorced and need to move within the next couple of months. During the divorce my credit got crushed. Had to short sale my house and my x wife got her truck repossessed which was under my name. I was going to rent for two years while I rebuilt credit. Are there any ways to control and    Invest in a property I'm living in then sell for a profit in two years when I'm ready to buy a more suitable house? Or am I pretty much stuck renting until my credit goes up? I appreciate any advice. Thank you!

Pick a market to invest with cash while you are rebuilding your credit. Buffalo, NY, Many in PA/OH pick one close to you even if you stay in MA.

hi ernie. yes, you are in a tough situation, but you are not in an impossible situation. having a good credit score definitely helps in RE, but it is not mandatory. you could buy on land contract, or sometimes it is known as owner hold. put some money down on a place and make the payments directly to the owner. sometimes you can get a place pretty dam cheap if you look around. i have actually bought places from a city for as little as $500. they took the place for back taxes and then sold it to me. granted, the house was not livable at the time, but you could do a similar deal to restart yourself. after a couple of years of reestablishing your credit, you could revive your credit score and move on. if they city would allow it, you could buy a place, buy a camper trailer and live right on site in the camper while fixing up the house. you would have all the conviences necessary and still be right there on site to fix the house up. check into it. good luck to you

Originally posted by @Ernie Thivierge :

hello everyone. 

I could use some advise.  I'm recently divorced and need to move within the next couple of months. During the divorce my credit got crushed. Had to short sale my house and my x wife got her truck repossessed which was under my name. I was going to rent for two years while I rebuilt credit. Are there any ways to control and    Invest in a property I'm living in then sell for a profit in two years when I'm ready to buy a more suitable house? Or am I pretty much stuck renting until my credit goes up? I appreciate any advice. Thank you!

 Hello,

Mark, John, and Joe have mentioned my suggestions. Look over their posts carefully, then research those avenues.

Lending home is a lending company for real estate investors. They charge an application fee, but the loan is value-based. Give them a call to get a better jist of what they can offer you to accomplish your goals.

In addition, for rent signs in your local area that do not have a business name or business website are usually posted by re investors and landlords. You could call on these and ask for a lease with a separate option to buy. You could negotiate any option money that may be asked for by landlord. (Some financial institutions may consider an option with 5 or more renewable years, a mortgage-and you could score a loan for the property when presenting your lease-option to the financial institution.)

Continue to research real estate contracting strategies. 

Find out_to be sure, if the repossession and short sale is already on your credit by asking for your free report-DO NOT ASSUME IT IS ALREADY THERE.

Craigslist may have motivated sellers in your area that only want a sizeable down payment before contracting a property to you. (Look into Dodd-Frank to know how specific regulations will apply to you.)

You have enough information on this platform to get you moving toward your goals.

This has been an information nugget.

Anthony

thank you for all the ideas. 

I especially like the sandwich lease option. If I fix up the property then resell in 2-3 years would we split the profit?

Also, what about assuming the mortgage, is that possible with bad credit?

Originally posted by @Ernie Thivierge :

thank you for all the ideas. 

I especially like the sandwich lease option. If I fix up the property then resell in 2-3 years would we split the profit?

Also, what about assuming the mortgage, is that possible with bad credit?

 If the comment about fixing it up and splitting profit was referring to a Sandwich Lease/Option, then you're not really clear on what a SLO is.

You already have your purchase (option) agreement in place with the seller.  What you do with the property after won't affect it, but one of the best parts of a SLO is as the "meat in the middle", you don't do any rehab.

Originally posted by @Ernie Thivierge :

thank you for all the ideas. 

I especially like the sandwich lease option. If I fix up the property then resell in 2-3 years would we split the profit?

Also, what about assuming the mortgage, is that possible with bad credit?

 Assuming a mortgage, still needs approval of the lender...and the original mortgage must be assumable.  

thanks mark and Anthony. I didn't see your post until after my last reply. 

thanks joe.  I am a little confused with the SLO. There's a property with a lot of potential with a little updating. Comps are great with a motivated seller. I'd love to live in it for a couple years then resell it. I'll research SLO and learn more about it. See if I can make it work. I really appreciate your time and advice!

Originally posted by @Ernie Thivierge :

thanks joe.  I am a little confused with the SLO. There's a property with a lot of potential with a little updating. Comps are great with a motivated seller. I'd love to live in it for a couple years then resell it. I'll research SLO and learn more about it. See if I can make it work. I really appreciate your time and advice!

 You don't live in a house with a sandwich lease.  You lease/option it from a seller, then you turn around and lease/option it to someone else (the ultimate tenant/buyer).  You are in the middle (the "meat"), and you make money on the "spread".  Thus the sandwich.

oh! Ok. I get it now. Thank you for clarifying. I appreciate the info. 

I have located a for sale by owner and will be talking to them today. This is in Southern California. A desirable area and in a desireable community. Fontana to be exact. Home could use some work and updates. How would I go about getting an investment loan on something like this. Im looking to flip it or wholesale it.

I have the rehab experience and a 570 score

Help please

Originally posted by @Ernie Thivierge :

oh! Ok. I get it now. Thank you for clarifying. I appreciate the info. 

 It's all about control

Creative Financing 101

No Banks No Credit

1. Lease Option and assign - easiest - You lease Option from Seller and assign for 3% to 5%.  Be fair, charge market rent, market sales price, no rent credits.

2. Sub2 - Get the Deed - must deal with the due on sale clause - not impossible.  You get the deed, seller agrees to keep the loan in their name for a short time, good for fix and flips, not long term.

3. Wrap Around Mortgage - must deal with the due on sale clause - not impossible. You wrap a new loan around the existing financing, aka "all inclusive trust deed", seller agrees to keep the loan in their name for a short time, good for fix and flips, not long term.

4. Land Contract - popular in many states.  Depends on Local Customs.

5. Free and Clear Houses - Buy on Private First Mortgages - Create good private terms, like a Moratorium on payments, Subordination, and Substitution of Collateral.

6. Sandwich Lease Options - You lease options from seller, sub lease, sub option - you must pay seller even if Tenant Buyer you are sub leasing and sub optioning to.

7. Joint Venture with Seller on minor rehabs, free and clear house - You get private money for minor rehab, give note for equity, no payments to seller for 4 months, buy it, fix it, resell it, pay off private loan and seller's private note

8. Joint Venture with Doctors and Business People - many ways, I like LLC creation and JV Agreement, I find and supervise a local rehab, get funding with private individual, or hard money, buy it, own it, fix it, resell it, split net profit after all expenses, large numbers does not need 50 50% split, can be 25 75 split if deal is strong enough.

9. Wholesaling and Co-Wholesaling - You find a deal with a lot of equity and a lot of work in a reasonably good area.  You can co wholesale by partnering with other wholesalers, either just find the house and seller, or just find the Cash Buyer.

This is just residential, commercial is wide open.

Dodd Frank applies to financing owner occupants.  See

http://www.biggerpockets.com/blogs/3/blog_posts/39...

the CFPB has the final say on owner financing.

Creative Financing is useful for not just credit impaired investors; there are restrictions even with good credit on US Govt backed loans such as FHA 203B

http://portal.hud.gov/hudportal/HUD?src=/program_o...

Marketing for Creative Deals

Forget the MLS except for Expired Listings and Cancelled Listings. I like LONG Days On the Market (DOM) , "about to" expired listings. Knocking on doors is the fastest way to a good creative deal.

Getting Licensed or Having a Licensed Agent in your C Corp or S Corp or LLC

Having a good excuse or reason for Bad Credit might be enough of an explanation to getting approved for a Realtor's Agent Sales License.

Good luck to anyone with bad credit.

It is a temporary problem.

Start building you Good Credit NOW!

See

http://www.myfico.com/CreditEducation/ImproveYourS...

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There are posters here that are awesome in Creative Financing

@Bill Gulley

@K. Marie Poe

@Curt Smith

@John Fedro

@Josh Caldwell

@Steve Vaughan

Brian G gave a mini course in creative financing (not using a bank or your credit).

Lots of seasoned investors haven't used a bank to facilitate real estate deals in years.  

Originally posted by @Joe Villeneuve :
You don't live in a house with a sandwich lease.  You lease/option it from a seller, then you turn around and lease/option it to someone else (the ultimate tenant/buyer).  You are in the middle (the "meat"), and you make money on the "spread".  Thus the sandwich.

Joe, what would be the difference between a sandwich lease and a wholesale deal?

Originally posted by @Brian Gibbons :

Creative Financing 101

No Banks No Credit

1. Lease Option and assign - easiest - You lease Option from Seller and assign for 3% to 5%.  Be fair, charge market rent, market sales price, no rent credits.

2. Sub2 - Get the Deed - must deal with the due on sale clause - not impossible.  You get the deed, seller agrees to keep the loan in their name for a short time, good for fix and flips, not long term.

3. Wrap Around Mortgage - must deal with the due on sale clause - not impossible. You wrap a new loan around the existing financing, aka "all inclusive trust deed", seller agrees to keep the loan in their name for a short time, good for fix and flips, not long term.

4. Land Contract - popular in many states.  Depends on Local Customs.

5. Free and Clear Houses - Buy on Private First Mortgages - Create good private terms, like a Moratorium on payments, Subordination, and Substitution of Collateral.

6. Sandwich Lease Options - You lease options from seller, sub lease, sub option - you must pay seller even if Tenant Buyer you are sub leasing and sub optioning to.

7. Joint Venture with Seller on minor rehabs, free and clear house - You get private money for minor rehab, give note for equity, no payments to seller for 4 months, buy it, fix it, resell it, pay off private loan and seller's private note

8. Joint Venture with Doctors and Business People - many ways, I like LLC creation and JV Agreement, I find and supervise a local rehab, get funding with private individual, or hard money, buy it, own it, fix it, resell it, split net profit after all expenses, large numbers does not need 50 50% split, can be 25 75 split if deal is strong enough.

9. Wholesaling and Co-Wholesaling - You find a deal with a lot of equity and a lot of work in a reasonably good area.  You can co wholesale by partnering with other wholesalers, either just find the house and seller, or just find the Cash Buyer.

This is just residential, commercial is wide open.

Dodd Frank applies to financing owner occupants.  See

http://www.biggerpockets.com/blogs/3/blog_posts/39...

the CFPB has the final say on owner financing.

Creative Financing is useful for not just credit impaired investors; there are restrictions even with good credit on US Govt backed loans such as FHA 203B

http://portal.hud.gov/hudportal/HUD?src=/program_o...

Marketing for Creative Deals

Forget the MLS except for Expired Listings and Cancelled Listings. I like LONG Days On the Market (DOM) , "about to" expired listings. Knocking on doors is the fastest way to a good creative deal.

Getting Licensed or Having a Licensed Agent in your C Corp or S Corp or LLC

Having a good excuse or reason for Bad Credit might be enough of an explanation to getting approved for a Realtor's Agent Sales License.

Good luck to anyone with bad credit.

It is a temporary problem.

Start building you Good Credit NOW!

See

http://www.myfico.com/CreditEducation/ImproveYourS...


I like Brian's extensive answer here. I have bad credit too (due to a bad investment decision I made in the past - listen to my podcast - http://Biggerpockets.com/show65 to find out my story). But do I let bad credit stop me from investing? NO - not really. 

In addition to what Brian said, you can also joint venture with CREDIT PARTNERS or people with excellent credit. Together, you can buy deals and finance them with low interest rates (conventional financing). This is what I use to make $50K+ per every house even when I buy them for 80% of their market value.

Originally posted by @Kristy Good :
Originally posted by @Joe Villeneuve:
You don't live in a house with a sandwich lease.  You lease/option it from a seller, then you turn around and lease/option it to someone else (the ultimate tenant/buyer).  You are in the middle (the "meat"), and you make money on the "spread".  Thus the sandwich.

Joe, what would be the difference between a sandwich lease and a wholesale deal?

 Usually a wholesale deal allows you to tie up the property for a very limited time period, there is no cash flow involved, and no profit at the end when the tenant/buyer exercises their option to buy.

You can get up to a three year lease/option at the investor end (in the middle), and do a series of 1 year lease/options at the back end until you sell the property.  You would make one profit at the time of option execution (whichever year that happens at), but you would make cash flow and option consideration for the years previous to the sale year.

Brian, you forgot to mention.....use cash! :)

My BS Meter is going off again.......

Why is "Mack the knife" playing in my head? 

There are plenty of ways to operate ethically and legally with poor credit, if you are weak in one area, you need to be stronger in another area to make up for that weakness. No credit, more money or more knowledge or more labor, this formula always works. :)

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