It takes money to make money, and that age-old adage is never more true than with credit-challenged investors planning a home rehab project. Property renovations often require investors to have either deep pockets or access to credit. In the case of the latter, investors must look for ways to make sure they have the ability to obtain the materials needed to complete a project.
In recent years, many people across the country have seen their credit scores take a beating, even those who renovate and sell properties for a living. A bad credit report can stall any project. So how can a real estate investor overcome a sluggish credit rating to complete a rehab project?
Store cards can build your credit while the project moves ahead
Traditional home rehab finance opportunities still exist, although many aren’t as common today as they once were, particularly in cases of poor credit. Lenders may agree to finance a project’s costs, sometimes facilitating an escrow account to manage the financing, but often deals require that an investor put money down to guarantee a contract. Since some investors, particularly unestablished investors, don’t have available cash at their disposal until the project is complete, they find themselves in a Catch-22 situation. They need money to make money.
If credit issues are preventing you from tackling a real estate investment project, there are options. Depending on the extent of the credit damage, investors can open store credit accounts at home improvement retailers such as The Home Depot and Lowe’s, which tend to have more lax credit score standards than general credit cards. By using the cards and making on-time payments, investors will improve their credit for future investment projects.
Other credit-building measures
Real estate investors whose credit has been severely damaged in recent years shouldn’t give up on the hopes of renovating and “flipping” a property. There are still ways to build credit relatively quickly, such as by putting your savings into Certificates of Deposit and taking out a secure loan against them. While this was once an easier and quicker way to mend a low credit score, it remains a possibility worth exploring.
Investors can also build business credit, leaving personal finance issues separate, to secure a loan to finance a project. This avenue can open up six-figure financing opportunities. If low credit is preventing you from getting a home rehab project off the ground, contact the real estate professionals at Toucan Investing and learn more about your options.
Justin Velthoen of Toucan Investing is a real estate professional. The content presented above should not be considered tax or legal advice, and is intended only to assist investors in finding general answers to their questions. Toucan Investing recommends that investors seek professional tax and legal advice from a licensed lawyer and/or custodian.