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Investing in real estate could be a good way to diversify your portfolio and earn returns on money that you don't want to put into savings, stocks or other investments. If you don't have good credit, you might have a hard time getting a conventional or government-backed loan to purchase an investment property. However, here are eight ways you can invest in real estate even if you have poor or no credit.
1. Invest in Real Estate Investment Trusts
Real estate investment trusts (REITs) are companies that buy, and often manage, real estate on behalf of investors. You can invest in these companies similar to how you'd buy stocks or mutual funds, with no credit check, and you can even make these investments within tax-advantaged retirement accounts.
Your portion of the rent profits may be passed on to you with monthly, quarterly or annual dividends. The share price can also rise or fall, which impacts your overall investment return.
2. Rent Out Space in Your Home
If you already own a home or have a large apartment and are allowed to sublease, you could look into renting out a room with either a short-term rental or by getting a roommate. You may also be able to make money off your real estate without having someone live with you.
Several online marketplace sites, such as Neighbor.com, StoreAtMyHouse and PeerSpace could help you make money by renting extra storage space, a parking spot or letting someone else use your space for an event.
3. Get a Hard Money Loan
Although traditional mortgages generally require good credit, a hard money loan comes from individual investors or investment groups that might not have as strict credit requirements. People use the loans to buy hard assets—often real estate—and, as with a mortgage, the asset secures the loan.
Hard money loans often have short repayment terms and high interest rates, and you may need to make a large down payment. They're often best for short-term investments, such as flipping a home—when you buy, quickly fix up and then resell the property to pay off the loan.
4. See if the Seller Will Finance Your Purchase
Although the arrangements aren't common, some sellers may be willing to finance the purchase of their property. You won't receive cash with seller financing. Instead, you (or your attorneys) come up with a loan agreement that you both sign, and then you'll make loan payments to the seller.
Depending on the arrangement, you might not receive the title to the property until you pay off the loan. This means you can't sell or mortgage the property until you pay off the loan or get the seller's permission. The seller may also still require a credit check, but their credit requirements could be more lenient than a bank or mortgage lender.
5. Join a Creditworthy Investment Partner or Group
Look for other investors or investment groups that are also interested in purchasing real estate. You might be able to contribute funding without your credit impacting a deal. Or, if you're good at evaluating or managing properties, you might be able to earn your share by finding new deals, bringing together investors and project managing the investment.
6. Borrow From Friends or Family
You also might be able to borrow money from friends or family members to purchase real estate. Or, you could use a loan from them for a larger down payment that can make it easier to qualify for a mortgage with a low credit score.
You may want to review the mortgage requirements with a professional mortgage broker or loan officer before accepting a loan. In some cases, you might not be able to use loans from certain people, such as non-family members, for your down payment. And always consider how borrowing money from someone you know might impact your personal relationship.
7. Use a Crowdfunding Platform
Some companies allow you to invest in real estate projects via an online platform. The investment minimums, fees and expected returns can vary depending on the project and platform, but there generally isn't a credit check. However, you may need to be an accredited investor—wealthy individuals and financial professionals—to participate in certain investments.
Prepare Your Credit for Real Estate Investing
Although there are many ways to invest in real estate even if you have low credit, improving your credit could make finding financing easier and help you qualify for lower interest rates. You can check your Experian credit report for free, and you'll get a free credit score and learn about the factors that are impacting your credit score the most.