April 15, 2024 Breaking News, Latest News, and Videos

How To Buy An Investment Property With Poor Credit

Real estate investing has the potential to enhance your financial status significantly. Whether you want to supplement income, reduce debt, fund a more lavish lifestyle, or prepare for future life milestones, the right property can help you achieve those goals. As financially beneficial as it sounds, one of the most challenging aspects of getting started is purchasing the property. Unfortunately, most new investors don’t have large sums of cash to buy real estate outright, and less-than-stellar credit makes acquiring a loan even more difficult. 

If this is your current situation, you may believe that real estate investing is impossible. Luckily, that’s not the case. Many novice investors have found ways to buy their first property despite having poor credit. Continue reading to learn how. 

Rent Out Your Home

One option is to start your real estate investment journey using your current residence. Many homeowners have rented out a room or renovated to transform their garages or basements into apartments. Ideally, you would use the rent to cover the costs of buying another investment property. 

Renting out your home isn’t for everyone. You’re essentially allowing a stranger to move into your place, which can be risky and uncomfortable. Your home is your intimate, safe space, and having someone new move in is a significant adjustment. If things don’t work out between you and the tenant, you can’t just ask them to leave. You’ll have to go through an expensive and often lengthy process to have them evicted. 

Take Out A Second Mortgage

If you’re not keen on the idea of having a stranger reside in your home, you could always consider taking out a second mortgage. Your house is an asset that can increase in value over time. If there’s enough equity, you may be able to secure a loan from a local bank, credit union, or mortgage company. Having a property as collateral reduces the need for excellent credit and increases your chances of getting approved. Depending on how much you receive, you can use it to buy an investment property. 

A second mortgage could generate the capital necessary to buy an investment property; however, it isn’t without risks. Your property is on the line until the mortgage is paid off. If you cannot find someone to buy or rent your investment property, you’ll have to come up with the money to repay the mortgage yourself. Failure to keep up with payments could cause you to lose your home. 

Bring In A Partner

Do you know someone else that is interested in real estate investing? If so, you could ask them to partner with you. They may have better credit or sizeable savings, which you can use to acquire your first investment property. A partner will also share the responsibility of the investment process with you, which lightens your load. 

Good credit and large sums of money aren’t the only qualities you need in a partner. They must also be trustworthy, financially responsible, and have goals aligned with yours. Otherwise, you’ll have a difficult time collaborating. Severing ties is also an extensive and expensive legal process that may not end well. 

Hard Money Loans

A final option worth considering is applying for a hard money loan. A hard money loan is a secured loan that uses your investment property as collateral. Like a second mortgage, eligibility for a hard money loan relies less on your credit status and more on the property’s value. Lenders assess the potential market rate after repairs and renovations to determine loan amounts. 

Borrowers typically have 12-24 months to repay the loan. Failure to repay the loan would result in losing your investment property (which is a lot better than losing your own home). Although the interest rates are higher and loan terms are shorter than traditional loans; hard money loans are a feasible option. 

The keys to reducing your financial load are finding an ideal property, investing in the right renovations and repairs, and quickly getting it on the market. The sooner you find a buyer or tenant, the faster you can repay the loan. If you’d like to take out a hard money loan, you can find reputable lenders online using search terms like hard money loans Los Angeles (or whichever city/state you wish to purchase an investment property). 

Although cash and good credit are ideal when investing in real estate, there are other avenues you can consider. While each of the options listed above comes with some risks, they can provide the financial boost you need to become an investor. As you evaluate your options, weigh the pros and cons of each to determine which is the best fit for you.

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