How To Buy Real Estate When You Don't Qualify For Loans

Throughout my college days I developed an interest in real estate through Bigger Pockets and knew I wanted to start investing right after graduation. Unfortunately, getting approved for bank financing with mediocre credit and almost no income history was not possible. Therefore, I knew I needed to be creative to get that first property under my belt. I wasn't sure how I could do it but was confident there was a way. Fast forward 6 months and I know have 5 rental units and am in the final stretch of my first flip. So how did I purchase these properties without the banks? Two words, partnership and seller-financing.

Partnership. As many BP listeners know, the BRRRR investment strategy is incredibly powerful but requires access to a large amount of cash to purchase and renovate properties with. Post graduation I had very little money myself so I knew to make the BRRRR strategy a reality I would need to partner with someone in my network to be the money man/woman. My parents were not high earners or wealthy by any means but they did have a personal residence they had been paying down the principal on for 20 years. After explaining the opportunity to them they opened up a Home Equity Line of Credit on their home for $90,000. Boom! I now had the capital I needed to pull of the BRRRR strategy. From there I went out and purchased a 4BD/1BA single family house for $69,000 that already had a tenant in it renting for $850 a month. The property needed no repairs so I went on over to the bank the day after closing to see what it would appraise for. Appraisal came back at $100,000 which allowed me to pull the full $69,000 out and pay back the HELOC while having a cash flowing rental property with no money left in it.

Seller Financing. My day time job is wholesaling so I am always coming across good leads and talking with potential sellers. A few weeks ago I ran into an older investor who had a 4-plex he was interested in selling. He was getting up there in age and didn't want to manage the building any longer. After some negotiation I realized a seller financed deal wasn't just possible but actually the preferred way this owner wanted to sell his property. Specifically, he didn't know what he could do with a lump some payment to generate the income he was previously receiving from the property. Luckily for him I had the perfect solution, give him a 5% down payment and have him carry back the rest at a 6% interest rate on a 30 year amortizing loan. This way he could continue to receive some income after the sale but have it be a completely passive income stream. For me it worked out great because I was able to purchase a cash flowing property with very little money down and no hoops to jump through at a bank.

All in all, just because you have bad credit, no income history or almost no money in your bank account doesn't mean you can't buy real estate. In fact, I consider it a strength because this lack of resources will force you to learn more and work harder than someone who buys property the conventional way. Good luck and start taking action today!