All Forum Posts by: Brian Gibbons

Bad Credit Real Estate Investor - Bad Credit Real Estate Entrepreneur

I've title this "bad credit real estate investor bad credit real estate entrepreneur"

Let's talk about where you need good credit

To get a car loan, to get an FHA loan or conventional loan, even to get a good job with the US government, your credit report is important.

There are two ways to improve your FICO score, get rid of negative marks, and to put new positives on.

To get old bad marks off, I would study on the http://FTC.gov site the "Fair Credit Reporting Act", which basically says that you can contest any mark on your credit report.

Ask them to investigate its accuracy, and from there, the creditor or reporter to the credit reporting agency that has the negative mark has a reasonable amount of time to do two things: one, check for its accuracy and to report its findings to the credit bureau, which are three companies. The list of credit bureaus and it's addresses to contact them are on the FTC.gov site. see

http://www.consumer.ftc.gov/articles/0155-free-cre...

What's reasonable? 30 days.

So what if they don't answer after you've written to the creditor on the credit report? 

 If they don't answer, you write another letter that states that you given a reasonable amount of time and the mark is still on your credit report, and then ask them to respond to you within 10 business days, if they do not, you will write a complaint letter to the Federal Trade Commission.

In 10 days write a letter to the Federal Trade Commission.

Many people don't realize that the number one complaint to Federal Trade Commission is problem on credit reports of consumers.

Federal Trade Commission gives out fines for people that don't fall the fair credit reporting act, I think it's $10,000 per occurrence.

So, if you want to clean up your credit report first contest negative marks.

If it comes back verified, I would get a debt negotiator, and you need to get at least 70% of the debt to offer them the money in exchange they help you clear up your report.  See

http://upgrademycredit.com/services/

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so what if your credit ghost? You have no credit? 

 Or your bad credit and you want to build up new credit marks to counterbalance the negative?

Well to establish new credit, the first thing I would do is borrow some money from somebody, like $1000 cash.

Then what I would do I would do what's called Bank Round-Robin

1. Take $1000 and see the manager for consumer loans of a major bank like Bank of America or Wells Fargo or Chase or Citibank.

Ask them to consider you for $1000 personal loan with $1000 security in a CD. Tell them this is strictly to build up a credit rating to show that you can pay your loan back on time.

2. If they give you 12 months to pay back the thousand and $80 a month or whatever, then double up on payments and pay $160 month, and then 

3. In six months you now have three marks on your credit report from that bank: "open credit line", "paid as agreed", and then "paid satisfactory".

The should bump your credit report up 50 points.

It's called Bank Round-Robin because you going to do it twice. 

Put the thousand dollars into "Bank One", then they give you the thousand back, then take the thousand and put into "Bank Two", they give you thousand back, you double up on payments every month, and in six months you get to paid as agreed accounts.

This is literally the fastest way for you to get new positive marks. 

Does it get rid of the negative ones? No. You still need to do that credit cleanup as talked about above. And not all of them are going to come off, and you shouldn't care about that.

What you should care about is creating new positive marks that create enough points to bump up your FICO score.

The best advice on keeping your Credit Rating Strong is this artice from MyFICO.com
http://www.myfico.com/CreditEducation/ImproveYourS...

On your credit cards it's important to understand that just a couple of cards with balances that are 30 to 40% of maximum, that are paid on time over 24 months will really help your score. 

What doesn't help is if you're maxed out at 100% of your limit all the time, or you go over limit at all. It's like a "credit usability score", or how you use your credit when you get it.

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How do I make money in real estate if I've declared chapter 7 or 13 bankruptcy, or have a serious problem like an IRS tax lien?

I love this question because you can make money in real estate without any credit of all or any banks at all.

When I was first starting out, I did not have BAD credit, I just had NO CREDIT.

 I was fresh out of the Marine Corps.

I didn't have a lot of job history, but I did work for a real estate investment company, and my job was to be the acquisitions manager, talking with home sellers about selling their homes.

I paid cash for everything. I think in the '80s we didn't even have debit cards, just cash.

I was making about $500 a week, so I did the Bank round-robin thing (see above), deposited a thousand bucks in a CD, got $1000 loan, paid it off in 6 months, then applied for Visa or MasterCard through the bank unsecured.

But to get back to bad credit and how to make money in real estate.

If you go to buy your commercial banks you're going to need a credit rating with a good FICO.

And you are going to need 20% down if it's an investment property or 3% down through FHA programs up to four units.

That said, how can you make money with BAD credit?

Well, here are some creative ways to make money with terrible credit.

1. Sub2 Purchase
2. Lease Options - Sandwiches and Assignments (also called wholesaling lease options or corporate assignment lease options)
3. Wholesaling flipping
4. Wraparound mortgage Purchase (aka AITDs)
5. Master lease options (small apartments)

Here's my advice if you have terrible credit:

Don't be real estate investor in the traditional sense where you need great credit

Be a real estate entrepreneur where you solve a problem for the home seller

The biggest problem right now for sellers is to have "no equity"

Pretty houses with no equity are great opportunity for entrepreneurs with terrible credit to make some money

Here is an example:

Expired listing, house comps out at 500,000, they owe for 490,000, basically no equity, it was expired because they listed the house for 550,000 and nobody saw the house (over priced house is #1 reason for exprireds, like 80% of the time)

Have you got no credit or bad credit and you can't get financing yourself, why not solve the problem for the home seller? How to solve the problem seller?

Well this is what I do.

One, get an expired listing, knock on the door of the home seller, give a free report about lease to own, how lease to own works, why it helps them sell on terms versus for cash, how it helps them save money by not paying a real estate commission or closing costs.

Two, follow up with these expired listings, many need to think about it for a month, if you follow up, you will eventually get sales.

Three, when presenting to homes with no equity, you want to go through all your choices, so what I do is I present three columns, and basically talk about the cost to sell in the first column with an agent, which include, real estate commissions of 6%, closing costs that 2%, sellers concessions which can be 3 to 6%, vacancy costs which can be 4 to 6 months while an agent tries to sell a vacant house, and the seller still have to pay PITI, and lastly spruce up costs like paint, carpet, landscaping, etc. to compete with all the other $500,000 houses. I explained to the no equity seller that many buyers are very picky, and they wanted repair things that you don't want to repair as a seller.

The worst part about selling with an agent with a "no equity house seller" is this...The Seller has to pay to get rid of the house!! 

This amount that you have to pay is generally 10% or more. Sometimes it's 15% of the value of the house. 10% on $500,000 is $50,000. If the Seller owes $490,000 on a $500,000 house Seller has to pay $40,000 and get rid his house!

So what else can you do if you don't want to sell with an agent and pay the costs to sell?

In the middle column I write "hire a property manager", and pay 7% the 10% of collected rent.

Then you need to get landlord insurance, and generally prepare your house for a rental. Many nice houses are not treated well when rented out the tenants. There is risk of damage well over the security deposit of 1 month's rent. There is also risk that the tenant may not pay you on time or pay you at all, then you need to hire an attorney, and go through an eviction. You still to pay your PITI while you are evicting the tenant which sometimes takes a while... up to two months or longer.

Lastly, I generally say, in the state of California where I live, but you could say in a state of ____, there are a few creative solutions.

The first creative solution is let somebody live in your house for a while, pay market rent, and then buy the house down the road as they work on their credit rating and decrease their debt.

I show the home sellers that have "no equity" how difficult it is to get a mortgage today, because the new laws from Dodd Frank in the safe act have tightened up mortgage origination.  In fact over 45% of mortgages that are applied for it tonight right now, mainly due to the 43% debt to earnings ratio. 

People simply have too much consumer debt to get a mortgage, and they need to pay down some credit cards usually.

So how can be a win-win between the no equity seller and the homebuyer that just gets turned down because of credit or debt issues?

And how can you make money with this, the bad credit entrepreneur?

I generally explain to the home seller that they'll make more money if they do a lease to own than trying to sell the house with an agent. The costs to sell are much less because there's no commission and no closing costs as the buyer pays closing costs.

I do tell them how my business works.

I enter into an agreement with you the home seller, as a principal and not as an agent, and the documents include a lease and an option, and then my job is to find a buyer and assign that paperwork or sell my interest in the paperwork.

There is no fee to the seller.

Let's talk about my bad credit and lease to own. 

If I am providing a solution for home seller, where they're going get their house sold at top price without an agent and without closing costs, that home seller NEVER ASKS ME for my credit rating. Period, never has in 30 years of creative financing with sellers.

Now let's talk about subject to and wraps.

If I buy and subject to the existing financing or wraparound mortgages, there's no credit pulled.  NEVER.

For people new to subject to it means that you're buying the property "subject to the existing financing". The loan stays in their name, and you make payments from your bank account directly to the bank of the mortgage. You also pay directly insurance and taxes.

And when you buy on a wraparound mortgage, existing financing is kept in place, and a new mortgages wrapped around the existing financing. Also, the loan stays in their name, and you make payments from your bank account directly to the bank. You also pay directly insurance and taxes.

Note: there is a due on sale clause with a wrap and a subject to transaction, and many times a property trust is used.

Due on sale clause means that the bank has the right to call the loan due, but if the payments are paid on time, religiously, there is no real reason for the bank to call the loan due on performing, "in good standing" asset.

Here's a business plan for bad credit entrepreneurs:

One: understand that your bad credit is not stop you from operating a real estate business.

Two: if possible get licensed sometimes bad credit prevent you from getting licensed. If you can't get licensed because your bad credit, have licensed agents in your LLC, so you can at least tell the real estate report that you have licensed agents in your company.

Three: work especially with expired listings, because they are more open than anyone to creative solution such as lease to own, sub2, and wraps.

I have saved the last paragraph for the best information: how do I get paid?

You get paid a lease to own or wraparound mortgage or subject to in different ways.

Lease to own where you enter into a lease an option with the seller, then assign that deal, usually make 3%. 3% on $500,000 is $15,000.  Nice check!  Cheaper markets, 3% on hundred thousand is $3000.  So do a few of them!

Subject to and wraps you're buying the property in your name (your LLC). 

When you buy the property in your name, you want the ability to sell the contract. So tell the seller that you are going to sell the contract.

Or if you don't want to sell, keep the contract and rent the property out or lease to own the property out.

Caution: do not do properties on wraps or subject if the numbers don't make sense

Example: buy subject to, PITI to the bank = $1000 per mo, rent is $1000 per month, $0 positive cash flow.

Yuck! You still have maintenance to pay, and if you have to foreclose and get property back, that's some real money, because you still have to pay the underlying lien.

So get a great positive cash flow and buy some equity was subject to and wraps.

The way I look at real estate rentals, it costs 10% to sell, so that is my Zero Mark.

What that means is $100,000 property today is really worth 90,000 to me with no equity.

So in order for me to be interested I need st least a 20% equity position to buy on a wrap or subject to.

That may not be everyone's benchmark.

So this long post talks about bad credit and how to improve it, and also talks about being a bad credit real estate entrepreneur not a bad credit real estate investor.

There many other things you can do with bad credit credit: I love helping sellers that have a mild rehab, say $300,000 house, needs 20,000, but just updating bathrooms and kitchens, the roof is fine, foundations fine, HVAC is fine, paint and carpet is fine, just bathrooms and kitchens.

I will do a JV with the seller, basically saying to the seller,
if you can not afford to do the rehab work, we can work as partners and use my money and my company's labor to do the work, then sell the house, then we'll get the money out when it sells.

This is an advanced concept, "JV with the seller", but the seller makes more money by doing it this way been doing that 65% of ARV less repair costs of wholesalers.

In closing, 

Best of luck everybody that has bad credit and go make some money!

Maybe @Brandon Turner @Michael Carbonare 

@John Jackson @Misty W.

can say a few words about "Bad Credit Real Estate Entrepreneurs"

This is a public forum @Kevin Francis and @Kathleen 

@Kathleen Wilcox 

The due on sale clause is been talked about on BiggerPockets for very long time

Above I stated the exceptions as per the Garn St Germain Act of 1982

Every mortgage has a due on sale clause there's been created before I think 1986

It means that the bank has the right to call the loan due, not that it's going to call the loan due

After analyzing the tenant buyer through an RMLO to check the ability to repay and other issues, let's say they need two years, I will start them off with a one-year lease and a one-year option that can be extended.  After the 12 months if they pay the lease on time they get a new lease a new option

http://www.biggerpockets.com/blogs/3/blog_posts/42...

The link above I talk about, as an agent, door knocking to expired listings.

I talk about why the listing expires, and how to make 3% as an agent with lease 2 own if they have no or little equity (under 10%).  You do act as a principal like a wholesaler.

I would look at JVing w a doctor - IRA Private Lender.

1. Loan $110K to an LLC Partnership

2. $550K sales price, $55K costs to sell

3. 550 - 110 - 55 = 385 before liens-mortgages

4. Split profits any way you want

@Rick H. 

@Ellis San Jose

JV With the Seller - Minor Rehab

Deal Details - Granny's House ARV $300K

40 year old house - Free and Clear, good neighborhood, all major items in good shape, from roof to foundation to HVAC.

Problem, the house is dated.  Needs $20K for new kitchen and updated bathrooms.

Solution:

1. Buy on a Seller Financed Mortgage (can be a moratorium - no payments for 6 months) and a JV Agreement agreeing to buy on a note, repair as per a scope of work, and list with an agent at 97% of comps with a CMA performed

2. Own the house, Repair the house with a Private IRA Loan $20,000 8% apr for 3 months

3. List and Sell at 97% of comps, pay the costs to sell, pay the private lender

4. Earn a JV Fee of $10K or so

5. Pay the Seller's note off

@Rick H. 

@Ellis San Jose 

@John Jackson

@Dmitriy Fomichenko 

Any thoughts?

First @Account Closed thanks for "fessing up"

I am going to tell you how I got started and then answer your questions.

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“You must be the person you have never had the courage to be.
Gradually, you will discover that you are that person, but until you can see this clearly, you must pretend and invent.”
? Paulo Coelho
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Here is a personal story.

I was in a bar, and I just lost my job. I am 55 now, but at the time I was 25, fresh out of the US Marines. The year was 1983. Interest rates were high, over 10%.

At the bar was this smiling guy, and he said,
  "Who just died?"
I looked at him. He must have smelled the self-pity on my face.

Here is what just happened to me. I worked for a small firm in Constriction Engineering Products, Johnson Controls, that sold air and water control equipment to large apartment and commercial building contractors. My math and science background helped me.
But the "J O B" paid $400 a week and was an advance on future commissions. 

 I had over $10K in commissions due to me, and asked my boss for my commissions now. He laughed, and said I would get paid when he got paid.

I got in an argument with him and he fired me.

So this guy at the bar said to me,

"Tough break. What are you gonna do now?"
"Look for work I guess," I replied.

So he says, 

  "You like real estate?" 

  You like solving problems for people?"

I was taken aback by that comment. Was this guy trying to hire me or what?

I smiled, and asked him, "are you looking hire someone?"

He chuckled, and said, 

  "Well, I'm always looking for great salespeople that hustle."

Here's what happened. 

  The man's name was Glenn, and he owned a real estate investment company.
He never called it a real estate investment company, he called 

      " a place where we solve problems for people."

The thing that was amazing about Glenn as he knew a little bit about everything and I mean everything.
He knew about 

-business, 

-legal issues, 

-tax issues, 

-marketing, 

-sales, 

-promotion, 

-networking, and 

most importantly he knew about people (psychology).

The first thing he did was tell me that 

you have two ears and one mouth, and y should listen more than I talk.

Second thing he did was have me read 

"How to Win Friends and Influence People" by Dale Carnegie.  It was written in the 1930's

Then he taught me how to set appointments was home sellers, go out to their home, and write up a letter of intent to purchase or lease.

He said to me, 

       "your job is to bring me potential home sellers will consider a creative offer."

I was very confused the first few months working there. 

I did know what a wraparound mortgage was, 

or a subject to, or 

subordinating notes, or 

lease option assignments.

So I stumbled along.

What allowed me succeed was Glenn had an awesome direct mail marketing machine, and even had an appointment setter just for me, so all I just needed to do was to get my car and go talk to 3 to 4 sellers everyday. 

That's every day, 7 days a week.

I'd use the same presentation with everyone. 

And I've get them all letter of intent to buy for cash or on terms.

One of the things Glenn told me was 

"some will, some won't, so what!"  That means do not care if they sign up right away, and FOLLOW UP, FOLLOW UP, FOLLOW UP.  Call them or mail them a post card.  I like Lime Green Florescent post cards.  I handwrite on the cards different things to "push them along.  

Do you want to solve your house problem this week?  Just call me.  Brian xxx-xxx-xxxx

What that means is that some sellers will do what you want to them to do, and some will not. 

    The law of large numbers cures all problems.

What surprised me even more is that some sellers would call the office, in 3 to 6 to even 12 months later, because they appreciated my first meeting with them.

Especially some sellers that were very angry with me in the beginning, called me names, said things like "you just are trying to rip me off!!"

In my first six months I must have seen 20 people a week, 80 a people month, almost 500 people in that six months. I think we did three to five houses a month grossing between $5-$10,000 per house, and I didn't make that money, Glenn did.

The arrangement for pay for me was I would make $500 cash every week, that's cash. No benefits and no 401(k). 

Was it legal, I don't know. I didn't own the business. I was hired hand.

After a few months, Glen said 

    "You're do a good job keep it up. 

      "I'm going to give you a few more duties. I want to be able to travel so you can run the office while I'm gone."

I was scared at first, having never run a business. I was like the security of a paycheck.  A Job.

But I loved being able to make decisions, being the captain of my own ship.

I think what made me more pissed off than anything though was making $500 a week, and making bank deposits of 10,000, 20,000, even 30,000 a week.

So after making $500 a week cash for 30 months or so, and living frugally, I said the following to Glenn,

  "Glenn, I've learned so much here. 

  You taught me about sellers, buyers, legal, tax, marketing, there is no way I could have learned this in school.

  "I saved up some money and start my office. I won't compete with you. I'd like to give you four weeks notice."

Glenn leaned back in his swivel chair, smiled and said,

   "Brian, you're irreplaceable here. You came to me knowing nothing and now you know everything you need to know. You never asked for a raise or a partnership stake in the business.

    "I can honestly say that without you over the last two and half years I would not have made the kind of money that I have. I have two things to say to you before you go onto greener pastures."

  My God I was really nervous. 

  What was Glenn going on to say?

"The first I want to ask you is, what took you so long?"
Then he laughed.
"I expected you to hang in there for about six months and move on.
You're really smart and you should have started your own business long ago."

"The second thing I want to tell you is I'm going to give you a bonus, (he takes out his checkbook, and writes this check out) "and I don't want you to look at it until you sit down to car and drive away, deal?"

I said, "deal!"

I got to my car, exhale, and take the check out of my pocket.
It was for $15,000.
Back in 1985 that was a lot of money.
In the memo I remember what was written,
"for my good friend Brian."

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With everything I learned over that 2 1/2 years, it didn't take me long to be profitable.
I got a modest office space, with neighbors that were white-collar professionals, and attorney and CPA.
I had a secretary part-time for 3 months, then full time.
And Glenn even took me to lunch every week, said he missed me.

That first business was very special to me.
I have had several businesses since then, but that first one was my favorite.

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My wish for all that reads this is I hope you find your "Glenn" and you bust your tail working and reading. And learning.

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Bryan, the take away I am getting from your questions is you want a "mentor" to work with you 1 on 1.  I coach 1 on 1, and teach

Wholesaling Ugly Houses

Retailing Ugly Houses

Owner Financing Pretty Houses

Lease Options w Pretty Houses

Joint Venture Partnering

Private IRA Lending

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I give a guarantee that you will get your training fees returnedif you invest 12 months and 100 hours with me and i do not get results.  I charge alot of money.  But not as much as  Phil Pustejovsky, Fortune Builders or Rich Dad Poor Dad.

You will talk to me and focus on contacting expired listings that can not sell.  

Business Plan

-I like Lease Option Assignments, sub2 and wrap acquisitions on pretty houses.  

-I think being licensed in CO and doing lease option assignments is a great start.  See

http://www.biggerpockets.com/blogs/3/blog_posts/26...

- I like private money and giving long term interest to IRA holders and avoiding banks.

-I like JV'ing with home sellers that have "minor rehabs" as in Granny houses, updating kitchen and bathrooms, buying on terms, and quickly reselling for a JV fee, getting the home seller more money than the 65% of ARV less costs.

-I help you get a good attorney to get your agreements prepared.

The problem with seminar pitch men, everyone has a hand out.  And they do not teach you.  Their phone room has a "cubicle" coach, probably for $20 an hour.  

I have numerous examples of this, as one student of mine invested $29K with a coaching "elite" program and got a kid in a cubicle.

I have a BP blog here - http://www.biggerpockets.com/blogs/3-reiskills-and...

Lot of free stuff there.

Worst case scenario, I hope you get your license, learn CO regs, find a great RE broker that teaches (I like Keller Williams), and build a career in real estate.

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Best wishes to you, Bryan.

Brian Gibbons

@Brian Cameron

I think selling on terms with ample down, whether it be lease purchase, lease w option, wrap - note, if free and clear instalment sale, there are all good ideas.

Have a RMLO look over the deal.

See www.SellerFinanceConsultants.com for the RMLO in AZ

@Ned Carey  wrote an article about mentoring vs coaching

http://www.biggerpockets.com/blogs/3225/blog_posts...

@Bryan Cal

Why should someone spend time with you? 

What is in it for the Mentor to work with Bryan Cal?

Is time not money?

Where are you strong?

Where are you weak?

What are you willing to do to get a "mentor"?  Work for free in his-her business instead of "drain your funds"?

What have you accomplished in real estate investing?

What do you want to learn?

Where do you want to be in 12 months?  24 months?  36 months?  60 months?  120 months?

Sorry Bryan, but the attitude (I might be reading this wrong so forgive me) I hear is some "entitlement" attitude, but I might be mistaken.

What are you willing to GIVE UP to be financially independent, to work in your PJs til noon, to travel whenever you want, without asking permission?

I have had this on my BP blog for over 7 years or so, it is the CREDO of a Real Estate Investor.

Hope you enjoy it!

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Our Credo as Real Estate Investors:

I am a Real Estate Investor.

Of all of the occupations I have tried, researched, pondered, and read about over the years, there is none which compares to mine. My work is fun. I take ugly houses and make them beautiful. I help people out of difficult situations.

I am a Real Estate Investor. I am my own boss. I often work in my pajamas from the comfort of my home. I have no employees to baby sit, no perishable inventory to move, no franchise fees to pay, and no store to maintain. Still, I am in the top 5% of all income earners.

I am a Real Estate Investor. I now enjoy freedoms I’ve never had before. I am the master of my day. I choose who to work with. I choose my hours, and I decide if I will work 20 hours or 40 hours this week. I can also choose to take the day off, without obtaining anyone’s permission. I can take a month-long vacation. I can sleep in, or take a power nap after lunch if I want. I can review my notes and return my calls while lounging in my jacuzzi. I no longer have to commute during rush hour.

I have the freedom to spend lots of time with my wife and children. I do not have the stress and pressure of needing to close my next deal by the end of the week, by the end of this month, or even by the end of this year.

I live in one of the nicest neighborhoods, in one of the most beautiful states, in the best country that has ever existed on this Earth.

I am a Real Estate Investor. There are many who ‘want’ to be like me; many who are ‘studying’ to be like me; and many more who would be like me, but are just waiting for ‘this opportunity to appear’ or ‘that circumstance to change’… At the end of the day, very few actually are like me.

I have been very fortunate and blessed. I am finally living my dream. I love doing what I do, and I would not trade places with anyone, nor trade my life experiences for anyone else’s.

I am driven by the belief that life is short, and we need to ‘make a difference’ in the short time that we’re here, because after all is said and done, it’s really not about ‘us.’

I am a Real Estate Investor.

 Lumi if you were successful by buying training from someone...

How much was it?

What did you learn?

How fast did you make a profit?

1. market rent plus one months security

2. 3% option non refundable if not exercised, applied toward purchase price is traditionally done

3. sell at comps

4. Send tenant buyer to MLO to get preapproved for mortgage before they move in 

5. 6 mo term should be enough but possible extension for 3 months might be wise

6. No rent credited toward purchase price

7. I like a rent discount if paid by the first, otherwise standard rent, can be modest like $50

8. Tenant responsible for down payment