If I have bad credit, how do I start investing now?

Question

How do I get started with bad credit?  Do I need to wait until I improve my credit score before I can start?   I've heard about getting owner financing and lease to own, are these the only ways to get a start?

Mitch Messer · Answer

Hi @Neil Dyer and welcome to BiggerPockets!

You don't need credit to become an effective real estate investor: You just need the ability to identify (or structure) great deals!

If you had perfect credit, you'd be no better off than you are right now if you still didn't know what a good deal looked like. Actually, you'd be worse off, because you'd probably be tempted to go into debt for some horrible "deal" that would likely bankrupt you!

So, no, don't focus on credit or cash or financing. None of that matters until you find a legit deal.

Start now talking to sellers and learning how to solve their specific problems with real-estate-based solutions that can actually make you money.

Cory Carlson · Answer

@Neil Dyer the reality is bad credit requires more cash. Go to a local lender and talk about your credit and set some goals to improve it. The cost of financing might be high but you can probably get a loan or improve your position to get financing later. Sound real estate investing comes quicker while using financing as a tool, not a crutch.

Good luck!

Mark Safrin · Answer

Leon, a Bridge Loan is basically a short term loan. In Real Estate it enables you to do what is needed in the short term such as purchase a property and or Rehab it and or flip it etc... The loan bridges your current needs until you can do what you need to do to pay off the loan. This is called an Exit Strategy.  Typical exit strategies include selling the property or refinancing to another lower cost loan.

Hard Money Loans (the word Hard means the loan is backed by Hard assets - usually property) are usually bridge loans but have variants like Fix and Flip loans.

Hard money bridge loans attract high interest rates and other costs. They are typically used to purchase investment housing when a) your income does not qualify you for a conventional loan b) the conventional lenders take too long to close for your deal and c) when you need rehab money added to the loan to rehab the property. There are other uses as well.

Usually the idea is to do what you need to do with the bridge loan money as fast as possible and then exit the loan.

Hope this helps.

Leon Collins · Answer

I'm sorry,

Cory Carlson, what do you mean, “a tool, not a crutch.”? Could you elaborate?

Could you? Would you? On this post? (Dr. Seuss ref.)

Craig Jeppesen · Answer

It depends on why your credit is bad. If you have a high credit card balance to credit limit ratio, I would fix that before you invest. If you have collection acts, if you pay them off your credit will increase immediately. If you have bad credit because of past late payments, just change your behavior and you can invest. If you don’t pay attention to your finances don’t invest until you learn to be intentional with your money.

Derrick E. · Answer

If you have bad credit then the first thing you need to do is invest in yourself and at least build up to having decent credit (650+).

In the long run you will be much better off.

Mitch Messer · Answer

@Neil Dyer Please see my response to @Leon Collins about member tagging. I just happened to swing by this thread and noticed your question to me.

Here's an example of a deal that requires ZERO credit on your part. Let's say you start talking to sellers and come across a couple who have inherited investment property. In your conversation with them, you discover that the property (let's say it's a duplex) is vacant and in need of work. The owners don't want to be landlords and are ready to sell at a discount.

You might then call an experienced wholesaler who operates in your area and arrange a 50/50 joint-venture with them: You'll bring your duplex lead and they'll handle selling the deal to an investor. When all is said and done, you could make $5K as your share. You're now a professional real estate investor: No credit needed!

For the record, I'm doing this very deal as we speak. Fingers crossed, we close on Friday.

Neil Dyer · Answer

I appreciate your response Mitch.  So the concept is to find sellers that have specific problems that I could solve for them by structuring the deal that could work for both of us. Could you give me a couple examples of a deal structure you are talking about?  I'm not so familiar with these types of deals.  A couple examples would be very helpful.

Clint Shelley · Answer

Learn how to find or create a good/great deal. That's the number one skill you need. But, I do believe you need to repair your credit. It's an important snapshot of your financial history that you want to look it's best. Good luck 👍.

Clint

Neil Dyer · Answer

Craig: I had the naive impression that the court system would hold the banks accountable on the fraudulent transfer instruments on my mortgage with know robo signers and known foreclosure mill law firm documents.  I was wrong and got my house stolen and my credit ruined.  I was naive and gullible when someone convinced me that I had remedy as a victim of mortgage fraud.  I was unaware of how corrupt the court system is and was in favor of the banks.  Sometimes bad credit isn't for the reasons you imply.

If I have bad credit, how do I start investing now?

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