Key lesson I've learned after reviewing over 1,000 credit reports

As a lender, I have easily reviewed over 1,000 credit reports and can tell you that there is one common theme ALL long term and short term investors need to recognize. 

Taking basic steps to protect your credit score and reduce your DTI ratio (debt-to-income ratio) is imperative if you intend to either flip homes, acquire rental properties, and especially if your are strictly a Buy & Hold investor.

This is true for first time investors, full time fix & flippers, and rental property owners. 

I have witnessed too many investors erode their credit score by ignoring simple steps to keep their DTI as low as possible. 

As an investor myself, I take the same steps to protect my credit score I suggest to my clients or anyone seeking my advice on one of their first deals. 

FIRST: Pay your bills on time!

Ideally this step goes without saying... However, I've learned that it's worth repeating to new time investors AND real estate veterans who's time is spread thin and they forget to pay bills on time. 

Paying your bills on time is step number one to protecting your credit score. 

Set up auto pay on all of your bills. It's that simple. 

SECOND: The home my family occupies is the only property I own with a traditional 30 year mortgage from a bank. 

At times, I have used a traditional Fannie & Freddie loan for rental properties. However, Fannie & Freddie limit investors up to ten loans and they become increasingly difficult to receive approval on from traditional banks as you continue to grow your portfolio. 

Let me explain why I stopped using these loans for my rental properties...

LAST: I use private funding for all of my rentals in order to avoid them showing up on my credit report. This not only keeps my credit score healthy, but reduces my DTI dramatically. 

Is it more expensive to do this? 

The answer is... Sometimes. 

The cost of using private money for a 30 year fixed rate loan is not that much higher than a traditional bank. However, there is an ENORMOUS cost investors risk paying with a Fannie/Freddie loan... the opportunity cost of failing to grow my real estate business.

I CANNOT afford to have my credit score holding me back from acquiring my next property. Investors risk paying a serious opportunity cost when they erode their credit and are forced to sit on their hands waiting six months as their credit score slowly improves.

I always tell new investors to consider options outside of traditional banks in order to keep their DTI low so they can keep doing deals and growing their passive income.

This is a painful lesson I was fortunate enough to learn early in my real estate career. 

A healthy credit score and a low DTI ratio is an ongoing challenge for all real estate investors. Be sure to take this seriously and you'll avoid many pitfalls investors fall into.