Can you invest in real estate with a low credit score?

0

You’ll often hear that having a high credit score is your ticket to not only getting approved for a mortgage, but also getting a competitive interest rate on a home loan. And there is certainly some truth in that.

Mortgage lenders tightened their standards in the wake of the 2008 housing crisis. And so now, if you come in as a borrower with bad credit, you can be denied a mortgage if you’re considered a prospect. too risky.

But that doesn’t mean you can’t invest in real estate with a low credit score. If you have the capital, there are other options you can consider. Here are three options.

Image source: Getty Images.

1. Flip houses

Investors who flip homes generally don’t finance them with a mortgage. Instead, they build up the capital themselves or seek private loans at higher interest rates, whose lenders do not necessarily impose the same borrowing standards as mortgage lenders.

If you’re sitting on a pile of cash to invest, you can use it to buy a home and fund the renovations needed to market it to buyers. Since housing inventory is extremely low these days, you may find that buyers are eager for the opportunity to own a recently renovated property.

2. Buy a cash income property

Most homebuyers can’t afford to just shell out a pile of cash to buy a home. Instead, they must fund the bulk of a home purchase with a mortgage. But if you’re sitting on a lot of cash, you might be able to buy a revenue property straight away.

This is not without risk. Homes are generally a very illiquid investment, so you will need to be careful when parting with a large sum of money to purchase a home. But if you’re buying in a market with strong rental demand, you could easily begin to recoup your investment in the form of large monthly payments from tenants. And over time, the value of your income property could increase, putting you in a position to sell for a profit.

3. Stock up on REITs

When it comes to buying stocks, your credit score is irrelevant. Your broker doesn’t care about your credit history, as long as you have the money in your account to buy stock in the company you’re looking to own.

REITs, or real estate investment trusts, work the same way. These are businesses that make money by owning and operating portfolios of different properties. Retail REITs, for example, own malls and strip malls, and they make money by renting out that space.

You can buy publicly traded REIT shares as quickly and easily as you can buy common stock. And it allows you to invest in real estate without owning physical property.

Additionally, REITs are known for their above-average dividends. And if you hold yours for many years, you may well benefit from the added value of your stocks.

Don’t let bad credit get in the way

When it comes to qualifying for a mortgage, a low credit score could get in your way. But that doesn’t mean that investing in real estate isn’t an option. A number of options don’t require you to fill out a mortgage application and hope for the best.

Of course, it’s always a good idea to work on improving your credit score if you think it needs a boost. A higher score will make it easier for you to borrow when you need it. But from a real estate investing perspective, bad credit doesn’t have to be a barrier to building a strong portfolio.

Share.

About Author

Comments are closed.