When Do You Need Good Credit To Invest in Real Estate

One of the questions I get asked all the time is, what kind of credit score do you need o invest in real estate? 

Or somebody says ... I can't get involved in real estate right now cause my credit sucks or my score is really bad. 

Having a bad credit score shouldn't be a problem because, as I said in other recordings, you don't want to be using your own money to buy real estate. You want to use a joint venture partner’s money or an equity partner or a money partner. 

What they can also do too is they can help you purchase that property outright if that's one of the strategies you're doing. For example, in buy, rent and hold and fix and flips, if you're buying properties, let's say at a $100K and you're fixing them up and selling them for $200K, maybe the investor is going to fund the whole thing, the purchase price and the renovation or the repair.

So let's say the total renovation is $130K. The investor puts out the $130K. You sell the property for $200K. You split the profit of $70K at $35K each. You don't need a good credit score to do that. 

What you need is you need the ability to influence and to negotiate with the money partner that would allow him to get involved with you in the first place. You also need good negotiation skills to talk to a seller to make sure that you can get that property at the price that we just talked about, which is like $.50 to $.60 cents on the dollar. 

So a good credit score is still good to have. I would still look at getting a good credit score, but not for the purposes of real estate investing more for an optics perspective. People like dealing with people that may have a good credit score because they then think those people are more responsible.

Sure. things happen that are unavoidable. Maybe you lost your job. Maybe you went through a divorce. Maybe there was a death in the family. Maybe you had a bad real estate deal. Whatever the situation is. 

There are times when your credit score is not good and so you just have to explain the story. If somebody asks if they're looking to invest with you. Some of these joint venture partners will ask for a credit check on you. You can always tell them up front that it's not going to be very good, but here's what I've done. 

So what happens is you end up using your deals as a qualifier rather than your credit score as a qualifier. 

So when do you need a good credit score?

You don't really need it as long as you're able to talk around it. As long as you're able to give a good reason why you don't have a good credit score. 

That being said, a good credit score could allow you to go out and get a good line of credit or a good credit card so that it's available for emergency funds that you may need. Sometimes you may need legal assistance or other activities or marketing expenses where you just went over and you need some short term cash. 

So I would go off and start looking at improving my credit score, even though you don't need them for the big deals. It will come in handy when showing people what you're doing and you know that you're a responsible person and also it will be available if you ever need credit.