How to Venture into Real Estate with a Bad Credit Score

A good credit score is one of the most valuable assets of any potential real estate investor. Luckily, you can still invest in real estate with a bad credit score by various means. Before looking at how you can invest in real estate with a bad credit score, let's look at the different types of credit scores.

Credit Score Ranges

A credit score is a three-digit number representing your likelihood to pay bills on time. There are many ways of determining credit scores. For instance, Fair Isaac Corporation (FICO) outlines credit ranges as follows:

• 800+ - Exceptional
• 799-740 – Very good
• 739-670 – Good
• 669-580 – Fair
• 579 and below – Poor

If you fall under the fair or poor category, you can still work on your credit score and improve it with time.

Can You Invest In Real Estate With Bad Credit?

As mentioned above, you can invest in real estate with bad credit using other means. These include the following.

Hard Money

Hard money lenders consist of businesses and individuals who offer short-term money with high interest rates to real estate investors. They do not focus too much on your credit score but the actual property you want to buy. Such lenders want to know if they can still profit from that property if you default on your payment.

Wholesaling

Wholesaling involves getting a house from someone interested in selling the home on contract. You then take the contract to a real estate investor, sell the house at a higher price, and keep the difference.

Private Money

Like hard money, private money lenders don't focus so much on your credit score but on the quality of the property you want to purchase. Private money loans can be from anyone, ranging from a family member to a friend or acquaintance.

Even though it is always advisable to maintain a high credit score, you should not let your bad credit hinder you from venturing into real estate.

Investing in Real Estate with a Low Credit Score

Property ownership is often seen as a path to future wealth. However, for those with low credit scores, the ability to secure loans at reasonable rates can be an impediment to entering the market. In some cases, a bad credit score may disqualify you right out of the gate. This article will focus on alternative ways to secure funding and start your path to ownership of investment properties. 

Crowdfunding

If you are serious about investing in property, you can always turn to friends and family for financial backing. While you may not have the funds you need at your disposal, you may have the muscle or business savvy to manage the property. By offering to be the handyman and/or property manager of the property, you are providing a valuable service at little to no cost to your investors. Create a business plan for your investors that includes your proposed "sweat equity" and a positive cash flow to your investors.

Hard Money Lenders

Hard money lenders, similar to crowdfunding, is a group of individuals or private investors who provide financial backing. Unlike friends and family, they may require a hard asset in return for their financial support. The terms of these types of loans vary based on the agreement between borrower and lender. These types of loans are considered risky for both parties.

 Distressed or Foreclosed Properties

If bad credit is an obstacle that is too difficult to overcome, consider buying a distressed or foreclosed property. Buying a property outright avoids the issue of bad credit. However, these types of purchases don't come without their own set of risks. While the purchase price may be minimal, buyers should do their homework to determine if there are any liens against the property, how much it will realistically cost to fix and if they have enough cash on hand to close the deal. 

If you have bad credit, don't let it be an obstacle to investing in a property. Design a plan for how you intend to purchase, rehab and maintain that property in the long run.