Ways To Do A Deal With Bad Credit And No Money Down

Real estate investing, whether doing house flips or commercial, follows the traditional axiom of “In order to make money, you need to have money.” Or so it seems. This article will showcase how this isn't necessarily the case, and provide you options to acquire real estate with no money down, or with bad credit. Note that these are not guarantees, they're techniques. Like all techniques, and most advice in real estate investing, they won't do you any good unless you follow them carefully, and know when not to follow them to suit the deal you're brokering.

First and foremost, you need to ask the classic question, “What's my motivation?” Or, rather, you should know your motivation already – you should be asking yourself what the seller's motivations are. These provide the key to understanding what the seller really needs (rather than what they want) and will provide insight into how to make the deal happen, even under less than ideal circumstances. Is the seller trying to get out from under the house to facilitate a new job? Have they experienced a financial setback? Are they in danger of a home foreclosure? It's not quite a case of “search out the desperate sellers”, but knowing why they want to sell now and what they need is a clue on how you structure the deal.

Structuring the deal is a mind set, not a recipe. The mindset should focus on mutually beneficial arrangements. You benefit from doing the deal, the seller benefits from doing the deal, and both of you succeed. Again, knowing your seller's motivations are important here, because they'll tell you what the victory conditions are.

Making the deal happens means finding a way to meet the down payment. There are numerous options, and what follows is at best a summary.

First, and perhaps the simplest, is getting a loan. With good credit, getting a loan is easy – with bad credit, in the current subprime loan meltdown, it's not. (To be fair, given the amount of truly horrific loans written in the last three years, the subprime loan meltdown is having a softer landing than any analyst expected). That's all well and good, but if you don't have good credit, this may not be a straightforward process.

To unbind the kinks in the process, try finding your qualified buyer first. When you have a buyer lined up for a home, finding a seller (and finding financing) is vastly simpler. Sometimes called the “forward flip”, the drawback of this option is time – you can lose the deal if you can't find the inventory in time, so do your research on what's available and for sale first, then run some ads, and try to do some matchmaking – the buyer pays you cash down, you use that to secure the loan to acquire the property, and to pay for the renovations to make the flip happen; provided this can be done quickly, it's a win-win-win situation.

The second way to streamline the process is to find something the seller wants that you can provide – trading skills for equity can work nicely. In similar vein, leasing the property with option to buy can get your fingers into the property now, while you work to secure financing, and find a buyer to sell the flipped home to.

If you can gather up approximately 65% of the asking price of the home you're selling, securing financing is straightforward, and often doesn't involve a credit check at all. This is often called a “hard money” loan. The trick is gathering up the money to do so; the most straightforward method of doing this is getting an investment partner; either 50/50 or some other split. A secondary way to do this is to put another property up as collateral for a secondary loan; by staking the loan with something of comparable value, you can attempt to get your existing housing inventory to help you acquire new inventory. Variations on this technique can include getting a co-signatory on the loan, or investigating federal loan programs, this can get complex if you're not careful.

Related to this, and again tying to the question of what does the seller truly want, is the option of swapping properties. Again this is a way to get your existing inventory cleared out to something you feel is better suited to the marketplace you're in. Indeed, even if you don't have the exact inventory desired for the product swap, making a two way or three way transaction to do this can help convert a property rich portfolio into a capital rich one.

The last variation on this theme is having a seller carried loan. A seller carried loan allows the seller of the property to “sell” the equity that's been accumulated to you, and receive it back in payments at mortgage interest rates, which are typically higher than the rate of return he'd get by putting the cash directly into a bank account. There are risks involved, and you'll want to do a partial equity deal on this sort of structure, because a lot of sellers don't feel that a sale has been consummated without money changing hands. This can be combined with hard money loans and cosigner loans, though; again, there is the potential for a lot of complexity if you aren't careful.

All in all, by focusing on structuring the deal, it's quite possible to get into a real estate investment with no money down and poor to mediocre credit. Focus on making the deal a mutual win-win-win, and you'll be significantly happier with the outcome.