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How to Invest in Real Estate With Bad Credit

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If you’re interested in investing in real estate but you have bad credit, first you should be committed to improving your credit. If you feel that you are getting your credit score under control and you’re ready to start investing, here are some ways that you can invest despite your bad credit.

Partnerships

Nobody is perfect but everyone has their strengths. You can combine forces with a partner to tackle your new investments and projects. Look for someone who is strong in some way that you are not. You  need someone who is good with money, the time to invest in the project, and the same motivation that you have to reaching their goals. Motivation is everything. Investing in real estate requires time, effort, and research. If you don’t have the motivation to succeed, you might as well not bother investing at all.

Seller Financing

This means that instead of the buyer getting a loan, the seller of the house lends the buyer the money for the purchase. The buyer and seller decide on an interest rate, repayment schedule and consequences of default.

According to Bigger Pockets,  “Seller financing can be powerful, as sellers typically will not ask to see a credit score. However, the best use of a seller-financed deal is when the sellers own the property free and clear. In other words, they should not have a mortgage on the property. If they try to ‘carry the contract’ on the home that they have an existing loan on, their lender could foreclose due to something known as ‘the due on sale clause.’ So look for deals where the owner has no mortgage.”

Hard Money Loans

Hard Money is a private lending alternative for Real Estate investors. Private investors/Lenders will lend their money and will use the property as the collateral. Usually these loans cost (percentage-wise) much more than an average mortgage, often times up to twice what a regular mortgage does, plus high origination fees. Hard Money Lenders normally don’t make decisions based on credit but, instead, make them based on equity and income.

Hard money lenders normally generating their income from points they charge during the escrow process. Income can be generated also from the interest rate being charged on the mortgage, so the hard money lender will charge 11% on the loan and the trust deed investor will get 10%- In this scenario the hard money lender makes 1% spread. Rates are normally between 8%- 12%, points start at 2.5 from the loan amount.

This is ideal for investors interested in house flipping and those looking to buy, rehab, rent, refinance, and repeat (BRRR). These methods make cashing out the hard money lender fast and easy so that you can move on to the next project.

Contact the specialists at HML Investments today for more information about hard money loans.

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