how to get funds with bad credit

Question

I have been wondering if there is away to get the funds to purchase real estate by using other peoples money.

Jon Holdman · Answer

I'm sorry but I just do not buy this.  If you have no money, no experience, no contacts and bad credit you won't get anywhere even with a great project.  I know gurus like to say this.  But its just not reality.

Further, if you do a buy and hold deal (what I assume you mean by "purchase real estate") and have none of your own cash into the deal you will either be highly leveraged or you will give up all your equity to partners.  If you do manage some combination of funding that lets you borrow 100% of the purchase (possible with multiple sources and some sort of owner financing) you will be on the bleeding edge.  Your returns will be reduced by the excessive debt.  You'll have no equity to deal with a forced sale.  OTOH, if you bring on equity investors, you give up the equity.  If you put a deal together, but bring in investors for 100% of the down payment, guess what percentage of the deal you will own?  0%!  Sometimes new investors think they can do a syndication, get investors to fund 100% of the down payment, up front costs, and operating capital, then get a bank loan for the rest of the deal and keep 50% of the equity for themselves.  Investors will laugh at such a proposal.  Maybe you can keep a few percent.  You shoudl be able to collect management fees.  But even then, putting together such a deal requires experience.

@Ricky White use a multi-pronged approach.

First, work on your own situation.  Fix whatever is hurting your credit.  Do whatever it is you need to do to improve credit.  That depends on the issue, of course.   And work on accumulating some cash.  There are owner financed deals out there you may be able to get into even with bad credit, provided you have a good down payment.

Second, start small.  Start with SFRs and lower priced ones at that.  You may have to put in a lot of leg work to find something that's both a good deal and the owner will finance, but those deals do exist.  Start with one of those.  Learn the business.

Start slow.  Don't go out and try to buy a bunch of houses.   Just buy one.  Get it up and running and producing some income.  Accumulate cash and, when the time is right, buy another.  Once you have two tax returns with rental income, that will count when qualifying for a loan.

Look for private money.  That's people you know.  Not people who advertise or who respond to ads, even if those folks claim to be "private lenders".  Talk to everyone you know and everyone you meet about what you do with real estate.  Most won't care.   A few will.  A few of those will have money.  A few of those will consider lending it to you.  Maybe not right away.  But if you're cleaning up your credit, accumulating some cash of your own and have a house or two under your belt, someone will be interested.

Bryan Hancock · Answer

Step 1 = Pay your creditors and fix your credit

Step 2 = Pay future creditors and maintain your credit

Tiffany Youngren · Answer

"Money follows great projects." If you have done the due dilligence and have a great deal put together, it's highly likely you'll be able to find the funding mentioned by Ted and Zach.

Account Closed · Answer

Yes, seller financing, private investors, and hard money loans.

Curtis York Jr · Answer

There are so many gems in this post!!!

Tiffany Youngren · Answer

@Joel Owens - exactly. @Bill Ham - Very well said!

For anyone new to the industry, the very best thing to do is to find a mentor who is where you want to be, then follow his/her advice. The advice given here is great, and seems to cover many angles and opinions, but nothing replaces a one-to-one mentor who has reached (or exceeded) your goals.

It is true that it is important to take care of your own "house" (get your budget in order, work on credit issues, if any) before you expand and take on a more complicated budget (like a real estate deal). @Jon Holdman 's advice of starting small is also very good.

However, when you are systematically doing the "right things" - successfully managing current budgets, regularly finding and doing due diligence on potential deals, working with a mentor, constantly learning the trade, and submitting deals to lenders (private lenders, if credit is an issue), it is true that money finds good deals. Sometimes the cost of borrowing is higher, but if the profit margin works and meets your criteria, it is often still available where a well-researched and profitable deal is concerned.

Best of luck and enjoy the process!

James Hamling · Answer

While I totally agree and applaud What Jon said and pointed out (not the "late night TV marketing  and sales catch line to sell books and packages to the masses), I also feel the need to point out;

Intelligence& innovation is the "free radical" in the equation.

Getting to the moon was once impossible. Flying like a bird a notion of lunatics. Lighting up the night with no oil to burn or wick by some fancy fandangled magical e-lec-tric-a-whatie..... nuts.

We live in the age of impossibilities as every day life. So yes, while for 99.89% part to start and or do REI with no money, no credit, no assets to throw into it, basically obtain property and profit from it with nothing of physical value to leverage into it is rather a crazy notion,  it is not impossible just improbable.

The question and answer is more of knowing one's self, are you the type of person, the .02% to make it happen? Or do you need to work on making it happen per the 98.8% standard format?

I would say, if you take money and credit out of the equation which for most part removes financing, all your left with is intellectual value. So, do you have intellectual value enough worth of trading for a profitable property?

And yes, I DO know people who have done this, it IS rare.... but possible, possible. It is equity generation, you would need to build equity or value via your intellectual property.

Ricky White · Answer

Thanks guys for the info that is real helpful. @Bill Ham I would love to learn from you. Right know I work with a guy named Mark Pollard.

Bill Ham · Answer

Find deals and seller that have problems. Create offers that solve those problems. Creating value is how you can get started in real estate with bad credit. Some techniques to use would be master lease options or seller financing. I can teach you how.

Bill Ham

Joel Owens · Answer

Jon I was taking Tiffany's post to mean if you find a deal you can find buyers for it and make some money by putting a deal together.

I agree that if someone with no experience finds a deal and wants ownership letting someone without a track record "steer the ship" will make it go down like the titanic.

Ricky mentions getting funds but that could mean many different things for wholesale, purchase etc.

how to get funds with bad credit

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