6 ways to invest in real estate with a low credit score
Whenever you buy a house or other real estate – at least with a mortgage or through some other type of financing – your credit score is going to play a vital role.
It is first used to determine if you qualify for a loan and then it will influence the interest rate at which that loan is awarded. What if your score is low? It could mean paying a lot more for your property in the long run.
Fortunately, buying physical property isn’t your only option if you want to invest in real estate. There are plenty of other ways to invest in this lucrative industry, regardless of your credit score or credit history.
Are you looking to invest in real estate but you do not have exceptional credit? Here are six options to consider:
More commonly known as REITs, real estate investment trusts are portfolios of income-producing properties. As with stocks, you can buy shares of REITs, so also buy an interest in the income from those properties.
REITs can be purchased on all three major stock exchanges, and you can also purchase REIT ETF shares. If you’re interested in a specific real estate sector, you can find REITs focused on mortgages, offices, healthcare, retail, and more. (Want to start strong? These three REITs are poised for significant growth this year.)
2. Real estate actions
Similarly, you can also invest in individual real estate stocks. These include actions for brokers, lenders, home builders, real estate platforms, and more. As with any stock, you can buy stocks through a brokerage or investment account, and no credit check is required.
Need help choosing the right stock? Try this high-growing one.
3. Wholesale real estate
Wholesaling is a type of real estate investing that is a bit like flipping – except instead of flipping properties, you flip contracts. It works like this: you negotiate the sale price of a property (perhaps you know someone facing foreclosure or a house that needs a lot of work in the area) and sign the contract. Then you find an investor – usually a swimmer or owner – and reassign the contract to them for a fee.
That’s a fair amount of legwork, but if you have a strong network, are comfortable negotiating, and are willing to juggle a few contracts at a time, it could definitely lead to some solid returns.
4. Metaverse Real Estate
This one can be a little daunting for the average consumer, but if you’re willing to take a bit of a risk, investing in real estate in the Metaverse – a network of virtual worlds that has been in the headlines for the past few months – could be the right move. As with the other investment strategies on this list, your credit score doesn’t matter, and you can spend as little (or as much) as you want.
Our very own Kristi Waterworth is an expert in the field, so if you’re interested in pursuing this emerging investment opportunity, dig his articles on Fool.com. You can also check out his step-by-step guide to the process.
5. Crowdfund a development agreement
Crowdfunding is an easy way to get into the ground floor of a real estate development, without putting down a ton of cash (or worrying about getting a loan). With this approach, you come together with other potential investors, pool your money, and fund a project or property from the bottom up.
There are also tons of crowdfunding platforms, including Crowdstreet, Fundrise, Groundfloor, and RealtyMogul. Each makes it easy to choose deals, invest, and see returns.
6. List your home or extra room on Airbnb
If you already own a home, you can start your investment journey by simply renting it out – or even just a room. You can do this on short-term rental platforms like Airbnb or VRBO, or you can find a long-term tenant and rent them out on an annual basis. Keep in mind that not all neighborhoods and municipalities allow rentals, so check local laws before going this route.
Do you want to buy a physical good? You have options
If you want to invest in real estate the traditional way – by buying a physical property, your low credit rating doesn’t totally stop you. In many cases, you may be able to use an FHA loan to fund your transaction. These don’t require huge down payments or higher credit scores like other loans (often in the $500s, depending on the lender).
Your best bet with these mortgages is a strategy called house hacking. With this approach, you buy a multi-unit property with an FHA loan, live in one unit, and rent out the others. The rents you bring in can cover your mortgage payment (and more, ideally), and after two years you’re free to leave the property, rent it out, and buy the next one.
It’s a common and profitable strategy with the right approach to property and lending, so make sure you choose a good agent and mortgage lender to help you through the process. They can help you find the property and financing option best suited to your budget and credit profile.