IIf you’re looking to buy real estate to diversify your portfolio, you’ll likely need to get a mortgage. If you don’t have the money to buy outright — and are willing to tie up your money that way — you’ll need to qualify for credit to make your purchase.
This can be a big problem if you have a low credit score. That’s because lenders check your credit history to make sure they can trust you to repay a loan.
The good news is that you don’t need outstanding credit to add real estate to your investment mix. There are other options.
You can invest in real estate without buying real estate
If you have low credit, the big challenge with buying real estate is that you may have trouble qualifying for a mortgage. Lenders use your credit score to determine whether to lend you a loan and what interest rate to charge you. A low score triggers alarm signals and makes borrowing more expensive and difficult.
While there are some mortgages for bad credit borrowers, you could end up paying a hefty interest rate, making real estate investing more difficult to profit from. If you avoid this, you may have to pay cash for real estate instead of borrowing. This would seriously limit your investment options, and it would also mean losing one of the greatest benefits of real estate investing – the leverage you get when you can borrow an expensive property after making only a small down payment.
The good news, however, is that you don’t need a good credit history to invest in real estate, as you don’t actually have to own real estate to gain exposure to this asset class.
Discover your options for investing in real estate without loans
If you don’t have good credit and want to invest in real estate, you might want to consider buying a real estate investment trust (REIT) instead.
REITs can be traded like stocks. That means anyone can invest in a REIT regardless of their credit rating. And you don’t usually need a lot of money to invest in one, as there’s often no minimum investment required. This means you don’t need to borrow to invest, so your credit history doesn’t matter.
REITs are companies that pool investor funds and then use those funds to either buy real estate or fund real estate transactions. There are many REITs, so you can buy a REIT that owns the type of property you personally want to buy if you had better credit.
You also have the option of either buying any publicly traded REIT, or buying REIT mutual funds or exchange-traded funds. This makes it easy to find an investment that fits well into your portfolio.
Once you own a REIT, you can earn regular income from it if it pays dividends. You also have the option of selling the REIT for more than you paid for it if the price goes up. So when the real estate market is doing well, you reap all the benefits of investing without being held back by a credit rating.
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