Real Estate… Answered

Any experienced real estate investor will tell you that financing is the key to profits. Show the bank a high credit score and a good debt to income ratio, and you’ll gain access to their exceptionally deep pockets, allowing you to purchase more real estate investments than you could alone. Only, what if you don’t have a high credit score and a good debt to income ratio? Can you still invest in real estate?

The answer is yes. You just have to be more creative. Here are two quick tips for buying real estate without borrowing from the bank:

1) Use Cash to Buy the Real Estate Investment

If you aren’t getting any love from banks, go around them. Figure out a way to buy properties with cash. You’ll be able to close to faster, buy more properties, and relax without worrying about their approval. Every experienced real estate investor I know prefers to invest with cash because it’s both simpler and more competitive; sellers will take a 7 day closing with cash over a 30 day closing with financing any day of the week.

Only, how are you going to buy a property with cash when you can’t get financed? Here are a few ideas:

• Borrow the money from friends and family, using the property as collateral
• Borrow from a hard money lender for a short period of time
• Use an equity line on your house for short-term investments

For more information on buying foreclosures with cash, download this free report. 

Also check out the answer to the following question:

How can I raise private money for my real estate investments?

2) Partner with a Strong Borrower

If you don’t meet the criteria for a good borrower, find someone that does! Consider your friends and family. Who do you know that always pays their bills on time and seems to be saving their money? They don’t have to be rich. The person just needs a high credit score and a good debt to income ratio. More specifically, look for:

• A credit score over 700. The higher the better!
• At least $30,000 in fully documented, W2 income
• Less than 10% of their income in credit card debt
• As few mortgages as possible already on their credit
• Someone 100 miles or more away that can buy properties in your area as second homes

Once you find a person that meets those criteria, create a joint venture agreement between yourselves, specifying the details of your arrangement together. Attempt to outline as much of the process and your expectations as possible, so there are never any questions when you start making profit. Always ask an attorney to look over the contract before getting started.

Then, start making offers in the name of your partner. When an offer is accepted, have your partner qualify for the loan and put their name on the title. If you do it correctly, you shouldn’t have any problems getting the loan. The only downside is your partner could technically sell or borrow against the property without your permission. You could still sue them for violation of the joint venture agreement but chances of getting any money are small. Still, most investors that use this strategy consider it a relatively small and manageable risk.