Your credit doesn’t need to be perfect to invest in real estate. If your credit score is poor, you still have plenty of options when it comes to financing your investment—you’ll just have to stay away from traditional bank loans (which aren’t usually ideal for real estate projects, anyway).
If you’re not sure about your financing options, you’ve come to the right place. Here, we’re breaking down five of the top solutions to invest in real estate when you have less-than-stellar credit.
Hard Money Lending
Starting with one of the most popular options: hard money loans.
Hard money lenders focus more on the property’s value than your credit score, which means you’ll be able to get a loan request approved even when it would be denied by a conventional bank.
The best hard money lenders should make it possible for you to fund short-term projects that you plan to move quickly with, like fix-and-flips. Keep in mind, though, that their interest rates are higher than conventional loans (you’re paying for the speed of approval).
FHA Loans
If hard money lending isn’t quite right for your situation, you can look into FHA (Federal Housing Administration) loans.
These are government-backed loans that have lower credit score requirements, and you can usually make smaller down payments. However, these loans can only be used to purchase a primary residence, so if you already own a home and are investing in a second or third property, you can rule these out.
Partner With a Co-Investor
Know someone who has better credit than you? If they’re happy to get funding in their name, they may open you up to more options.
In this case, you may choose to split the investment equally or bring your own strengths to the table. For instance, one of you could make the down payment, while the other one manages or takes on the renovation responsibilities.
Buy A Multi-Let & Rent Out Other Units
Multi-lets are one of the most lucrative real estate investments when it comes to the profits you can make from them.
If you’re prepared to be in it for the long run, an option you might consider is buying a multi-unit property and living in one unit, then renting out the others to cover the mortgage. Once the mortgage is paid off, you’ll have the option to convert the multi-let back into a large home for yourself.
Consider Lease-to-Own Options
If you’re just looking to get on the property ladder for your personal living situation but your credit is stopping you, lease-to-own options are worth considering.
Essentially, these involve renting a property with the option to buy later while you improve your credit score.
Final Word
Hopefully, these tips have helped you to understand your options when it comes to investing in real estate with poor credit.
You shouldn’t find that your investing potential is limited because of your credit, but you’ll still want to improve it where possible. That means paying down high-interest debt and building a short-term credit improvement plan.