Mythbuster: Bad Credit, No Money, No Problem!

by James on 03/26/2010

Image of houses sitting on a stack of one hundred dollar bills

Many of you have probably seen those late night infomercials on getting rich with real estate. You don’t have to admit that they are intriguing, however, for many people they are captivating. I have watched them intently in the past, too! These real estate infomercials say that anyone can do it! Anyone, regardless of bad credit, no money, no job, no friends, etc. The question is, “Are these statements factual or full of bologna?” Let’s take a closer look!

What are common mortgage loans that are used to purchase investment properties?

  • Conventional loan - The two basic types of conventional loans are the fixed rate mortgage (FRM) and adjustable rate mortgage (ARM). These loans are secured by real property through the use of a document which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan (definition from Wikipedia).
  • Hard money loan - A specific type of asset-based loan financing through which a borrower receives funds secured by the value of a parcel of real estate. Hard money loans are typically issued at much higher interest rates than conventional commercial or residential property loans and are almost never issued by a commercial bank or other deposit institution (definition from Wikipedia).

Can someone with really bad credit purchase a home?

Technically, yes, they can… if this person can pay for the property with cash. Real estate investing with bad credit is tough. It doesn’t matter why a person has bad credit. If you do, a good option is to get with a good credit strategist to create and implement a plan to start improving your credit score. Otherwise, you’ll need to find an investor, family member, or friend who is willing to put up their credit to purchase an investment property with you.

Can someone with no money purchase an investment property?

No. If you have no money, I don’t know of any way you can buy real estate with the exception of a family member or friend helping you out. No money down deals are next to none these days. With conventional loans, expect to plop down 10-20% for a down payment on residential properties and 25-30% for commercial properties.

You can, however, purchase property without using your cash. If you have a decent amount of assets in retirement accounts or in your checking/savings account, you can purchase properties using only other people’s money. This is called a hard money loan. Hard money loans usually provide you with up to 70-75% of the after-repair-value of a property to use for purchasing and rehabbing the property. Interest rates and fees are usually higher, but if no money comes out of your pocket and you make money, that is an infinite return on your investment! No money out-of-pocket deals are still around, but competition is fierce and this generally drives up the purchase price of a home.

Can someone with bad credit and no money purchase an investment property?

Not without help. If you are an incredible salesperson and can convince family, friends or an investor to provide their credit and money to you while splitting the profits, then it is possible.

So, what have we learned? This myth has been BUSTED! Bad credit, no money, lots of problems!

Does that mean there is no hope for people with bad credit and no money?

Of course, not! Start by getting with an expert credit strategist to start the repair process of your credit score. Educate yourself in real estate. Find great investment properties and receive finder’s fees from investors. This is called bird-dogging. Once your credit has reached a good level, you’ll be ready to go!

Related posts:

  1. 5 Amazing Ways That Real Estate Can Make You Wealthy
  2. 12 Simple Steps To Get Your First Rental Property
  3. Progress Update: Closed On First Rental Property
  4. Top 3 Ways To Avoid Terrible Tenants

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