The Need for Making Real Estate Investments
Real estate investment stands to be one of the best options to secure our future financially. Now that there are plenty of residential projects with payment plans that are easy on the pocket construction of new houses would surely be something you may like. But if you did not have a good credit history then the thoughts about it must revolve your mind how to get through it. A crucial factor that arises in the situation is your credit score, in case of seeking a home loan to purchase a real estate property. If you’ve never given it too much thought and have always wondered how a bad credit score looks, first we’s like to introduce you to the concept.
What is a Bad Credit Score?
In a simplest way possible bad credit score is reflected by a person’s credit worthiness or the loan repayment capability as a number. Banks and lenders risk assess an applicant based on their credit score in determining a loan approval. It is scored on a range exactly between 300 to 900, and covers information pertaining to a person’s past payment history on credit. When a credit score is in the low range of higher than 650 a case likely for an approved loan would find strong justification.
If you are someone who has struggled with their credit score and is still not able to achieve a high credit score, there is no need to lose hope. It is a common perception that if someone has a low credit score, they cannot invest in real estate. Well, you are wrong. Should you be worried more about this? Hmm, let’s find out how you can purchase a property with a bad credit score.
6 Smart Strategies to Invest in Property with Bad Credit
1. Real Estate Partnership
Investing in real estate might be a good option if you are looking into forming a long-term partnership for other properties. If you are looking into partners for easily trustworthy investments, then an investment partner with a decent credit score can aid you in this. This can help you get the financial benefits of their credit when buying a property. In this case he will be a partner with you and he will be his share of the percentage of profits made. Come to think about it, when you are entering into a partnership for real estate, make sure you have a contract document that is reviewed and signed by both parties to avoid misunderstandings and conflicts. Getting into a real estate partnership allows you to scale up your investments which in turn yield high returns down the line.
2. Find a Co-signer for Your Loan
If your credit score does not meet the minimum requirements to get a loan approved, then try to look for a co-signer who has a better credit score. It can be a family member or a close friend who is willing to stand as a surety for the loan. Be certain that you have the ability to pay the monthly loan EMIs before you acquire the loan. Only taking the loan puts you in a precarious position, but also doing the same to your co-signer. In case you’ve made your EMI payments on time and without any delay, it will gradually enhance your credit scoring.
3. Adopt the fix and flip method
In case you are ineligible to purchase a newly constructed home, you can begin by purchasing a distressed house that is relatively cheap. This is because you can qualify for a lesser loan amount for an old house that is quite dilapidated. Once you purchase this house, you can get the necessary renovations done and sell it off for a profit margin. This type of investment strategy is referred to as fix and flip and it allows one to get a good return on investment within a short span of time. Even though more effort is needed while going this route as compared to buying a new house, the capital outlay is lower making it more convenient for low-credit borrowers. You have to ensure that you opt for a property that is located in a Dream Location for better appreciation.
4. Look at Hard Money Loans
If you are unable to obtain a home loan from a bank because of having a poor credit score, then do not worry as there always exists the option of hard money loans. A hard money loan is a loan secured with real estate property and is a short term funded loan made by private individuals or businesses. The usual maximum term for hard money loans is up to 12 months with some providers extending the period to 2 or even 5 years. These types of loans incur a higher interest rate in comparison to conventional mortgages offered by the banks or other financial institutions. Nonetheless, a hard money loan is very appropriate when one wants to use the fix and flip investment strategy. It is not a problem to obtain a hard money loan with a bad credit score for it is because these lenders do not follow stringent policies and regulations which govern credit scores.
5. Real Estate Wholesaling
Wholesaling real estate is yet another way to buy property when you’re not eligible for traditional mortgage financing. A real estate wholesaler is a middleman who enters into a contract to purchase a property from a seller with the intention of selling it at a higher price. The buyer pays more, and the wholesaler pockets the difference between both prices. Wholesaling is a great way to make money in the short term and it has been used by lots of investors around the world. It is also a good way for newbies to break into the real estate investment market since it doesn’t require too much capital to start off with. Properties which are about to go into foreclosure and other such real estate wholesaler’s contracts are those which the investor finds. There are lesser risks while doing this business but good marketing is a must for Wholesaling to be profitable. Some areas even require sellers to possess a real estate license to be able to wholesale.
6. Make Larger Down Payments
Makely Supposing that they have ample savings for a down payment, buyers are able to secure a loan. This means that borrowers can obtain a mortgage with a score that is less than good if they can make 20 percent in initial payment or more. A larger down payment may qualify you for obtaining the desired loan amount as it represents the good financial stability of the borrower. Home buyers should note, however, that this method can take a long time because it entails saving up quite a bit. You’ll still have the satisfaction of acquiring property based on your credit rating.
7. Investment activity utilizing REITs
For persons wishing to invest in real estate, be it for the first time or on a large scale, options exist like that of investing with REITs. REIT is an abbreviation for Real Estate Investment Trust. It actively goes for collecting funds from investors in order to be able to invest commercially. With a REIT, instead of purchasing a property on your behalf, a pool of your money will be invested. A Real Estate Investment Trust is a corporation that owns or manages a portfolio of properties where it makes its money by renting these properties and uses the rental income to pay dividends to its owners. Using this approach, you should be able to make some profit in order to gradually grow your wealth as well as enhance your credit score. With the use of REITs, it becomes possible to earn revenue without purchasing properties or managing them directly.
Increase Your Credit Score to Have More Opportunities to Invest
For the time being, while we hope that these suggestions commence the ideas of real estate investment in you, do prepare yourself for the future by improving your credit score first before attempting to make any substantial investment. Higher credit scores can allow you to borrow higher amounts while having to pay less in the form of interest. It is time to start repaying EMIs or paying credit card dues on time and wait for the outcome.
About Dream Location
We at Dream Location like to consider ourselves as innovative and forward-thinking. As a trusted brand amongst the buyers and sellers in the real estate firm, we are commuted towards ensuring a pleasant and easy purchasing process that is also easy to understand. This Lets us create credible content distributed by professionals active across different competencies within the real estate industry.
For more information about Dream Location and to search your dream property, please visit Dream Location on Google Map. Contact us today to know more about the best real estate deals in Delhi and North India; we will connect you to the right property investment.