Any time you plan to finance any type of real estate through a mortgage or other financing your credit score will play a large and critical role in someone lending you the money for the purchase.
Your credit score will first be used to determine whether you qualify for the loan and then again will be used to influence the interest rate you were offered by the company handing out the loan. If your score is below what the lender deems desirable for the type of loan that you are applying it could mean paying much more in interest or a higher required down payment.
If you were hoping to become a real estate investor but don’t have the highest credit score where can you start? Does it mean that real estate investing is off-limits to you? Here are six options to consider if you have a less than stellar credit score and want to invest in real estate.
Real estate investment trusts are most commonly called REITs and they are portfolios of income-producing properties. They are much like stocks where you can purchase shares of these portfolios and are therefore considered a property owner buying a stake and receiving part of the revenue.
You can purchase into these home portfolios on all three of the major stock exchanges. If you are interested in specific real estate sectors you can find REIT companies focused on different areas such as mortgages, offices, healthcare, retail, etc.
Real estate stock
Very similar to a REIT is investing in individual real estate stock. This can include stocks for brokerages, lenders, homebuilders, real estate platforms, and much more. With stocks, you can buy shares through a brokerage or investment account and there’s no credit check required for this purchase. It could be a good way to get your feet wet in the real estate investment world.
Wholesale real estate
Wholesaling is real estate investing that is similar to flipping but instead of flipping an actual physical house, you are flipping real estate contracts. With wholesaling, you negotiate a sale price for a property for example if you know someone that may be facing foreclosure and needs to sell their home quickly to avoid it and you sign the contract. After making a purchase offer on the property you then find an investor most often a flipper or current landlord and have them purchase the contract for a sort of finder’s fee.
There’s a lot of homework, digging, and leg work involved in this realm of real estate investing and you should be a strong networker as well as comfortable with negotiating and juggling contracts.
Crowdfunding can be an easy way to get into the ground floor of real estate development without having to put up a large chunk of cash and without having your credit checked. With this area of real estate investing, you pull together with other potential investors and put your money together to fund a project or property from the ground up.
Start out very small by listing your home on Airbnb or an extra room
You could get a small taste of what being a landlord would somewhat feel like by listing your home on Airbnb when you will not be in it or listing your extra guest room. Make sure that before you list your home on the sites that it is allowed within your neighborhood under current zoning laws or HOA conditions. – by Deeley Chester, West Ocean City area real estate
Purchase a multi-unit property with an FHA loan
If you don’t mind living close to your potential tenants you could use an FHA loan to purchase a multi-unit property that you live in and rent the other units. With an FHA loan, the credit requirements are not as stiff or high as other loans and the down payment requirement is much lower than a traditional loan.
It can be a good and profitable strategy to get you started in real estate investing but you do need to make sure that you are willing to live right next to your tenants.