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How to Buy Real Estate with No Money Down and No Credit

One of the most popular questions I hear a lot especially from new real estate investors is “Can I get into real estate with no money and no credit?” Yes, it is not only possible, but it is the best practice, especially nowadays with the tighter lending system, which does not favor new real estate investors who do not have a strong financial background and employment history.

The depressed housing market in recent years, where foreclosures have been at an all time high, and prices have dropped as much as 50% in some parts of the country, has been a fertile ground for investors looking to either flip (short term investing) or buy and hold (long term investing.) Although the economy is recovering, it will be quite a few more years on backlog inventory, or so called “shadow inventory,” which will present investors with great deals and opportunities as far as getting in real estate. Furthermore, since it is a buyer’s market, motivated sellers are willing to work with potential buyers/investors by offering creative financing opportunities.

“Shadow inventory” represents houses that have already been foreclosed and are on a backlog inventory with the bank, currently vacant, and being placed on the market incrementally, so not to flood the market with distressed properties and drive prices down again. As of 2012, per National Association of Realtors, this backlog is for about 4 more years.

These are some of the most popular ways to get into real estate with no money and no credit:

  • Flipping/Wholesaling — Transactional funding is the best bet. 100% financing on the property, including closing costs. This funding is based on the property itself and the fact that there is an end buyer in place, not on the borrower financial ability. Some transactional funding companies will allow extended funding for 30+ days, in order to get around seasoning requirements by some end buyer lenders.
  • Private Funding — This type of funding is provided by cash investors that are willing to loan funds for a return on the investment or for partnership arrangements. This funding can be used short term or long term.
  • “Subject To” or “Lease Option to Buy” — Under these scenarios, the investor takes over the property. With “Subject To” the title is transferred, but the existing mortgage stays in place, while with “Lease Option to Buy” both title and mortgage stay in the original owner’s name.
  • Self Directed IRA — IRA holders can elect to transfer their IRAs to a self-directed IRA securities trustee, who will issue mortgage notes to back-up real estate purchases.
  • Real Estate Syndication — It is a form of private funding, where investors pool their funds together in order to finance real estate projects, either short or long term.

As an old English proverb states, “Where there is a Will there is a Way” – if a real estate investor has a determination to reach his/her goals, he/she will find a way of thinking outside the box and making it happen.