I am currently renting a room at a friends house…$600.00/month + 1/2 utilities which comes to about 7 or $800.00/month.
I have been starting my road to financial freedom by going to a couple seminars and reading a few books on real estate investing. There are foreclosures everywhere I look including the street I am renting on.
My question is this?
I have no capital and no credit…Is it wise to go into a renht to own scenario and if so, how do i protect myself so I get a good deal in the transaction?..Also, how do these work?
You have to start with educating yourself about Real estate investing. There are a number of books. Here are some good ones.
“The Millionare Real Estate Investor” by Gary Keller ($25). It has a lot of good info. It also has models to follow so you can run the numbers on a property and see if it’ll work.
“The ABC’s of Real Estate Investing” by Garrett Sutton. Along with other “Rich Dad Poor Dad” books.
Do you have NO credit or BAD credit. If you have no credit, you can get a credit/gas card. Charge afew things on them, pay it off right away, then leave them alone. That should help you. Then you can contact a mortgage broker and tell them your situation. They should be able to tell you what you’ll need to do. Since you’ll be doing an owner occupied loan, you can get into a duplex for as little as 3% down… Perhaps 100% financing. Then use the the models in the books to run the numbers on the potential property. Since you’ll be living in the house, you’ll be able to almost live rent free…almost. While you’'re there, pay as much as you can on the mortgage and save some money in the bank. In about a year or so, you may be able to refi and/ or get a home equity loan to use to get into RE investing. It would be better if you can find a property that needs some work, You can fix it up while you’re living there. Because you should have gotten it cheap, you should have a good amount of equity sfter it’s fixed up. Use the equity to buy more properties and keep repeating the process. I’m oversimplifying it, but the books I told you about will provide the details… Good Luck
Without capital and credit, despite what the Get-Rich-Quick gurus will tell you, it won’t be easy and it won’t be quick. Your options will be limited as to what you can do. I’d recommend you begin with lease options. Fairly easy to get started with, and minimal cash needed. Good luck.
It sounds like you are asking how a rent-to-own (aka lease-option) works. Basically you pay an option fee for the right to purchase a property within a certain amount of time (usually 1 - 2 years). Then part of your monthly rent goes towards the purchase price when you buy. You need to make sure you can get your credit cleaned up so you can qualify to buy the property before your option expires otherwise you loose your option fee and all your rent credit.
The thing is, we don’t know if his credit is bad or he has no credit. If he’s doing an owner occupied, he has many options. First time homebuyer programs, FHA, HUD etc… You need to talk with a mortgage broker about your financial situation and work to get preapproved to buy a home. That’s the only way you’re gonna know where you stand financially. You’d be suprised of how little money you need for an owner occupied home. If your credit is bad, take 2 yrs. to pay your bills on time and save as much as you can. You should be fine. Don’t let ANYONE tell you that you have no chance without actually trying. NEVER PUT RESULTS BEFORE EFFORT!! EVER!!
The only thing on my credit that I am currently paying on is my car payment and that has been on time since the start of the loan in November of 2006.
My plan is to send out chain letters to everything on my report and try and remove anything I can. At that point throughout the next year I’ll negotiate down whatever is left and see where I stand then.
My credit is mainly made up of about $3,000 in student loans.
A credit card that is close to 7 years old.
A repo which will be 7 years old by next December.
And a bunch of miscellaneous collections (not one over $200.00)
But,
my question was if this process truly only takes a year or two(credit repair), would it be smart to get myself into a rent to own scenario now while the market is low and secure a low price on a house?
Also, can I get into a house in a rent to own scenario with a final price on the home below market value? If I’m gonna do this I’d want to be ahead of the game when it comes time for me to finally get the place in my name.
Well you do have a few options. I’m sure others will chime in as well.
You can stay where you are and continue to pay your bills on time and save up as much as you can. You’ll have much more options within 2 yrs. Also, you can use that time to soak as much knowledge as you can on RE investing. Is there a RE investment club or landlord association you can join in your area? You could find mentors and contacts that can help you.
You could try to get into a rent to own situation. You may have an issue with your bad credit right now. You really need to sit down and talk with a mortgage broker about your situation and what you want to accomplish. They’re usually very good at devising a game plan for you.
You could try a HML or private lender to see what kind of terms (if any) are available. If you’re doing an owner occupied, you may be able to make it work. I would use this as a last resort because you may be locked into a high rate loan for longer than you might like.
You could try to find a cheaper place to live. $800 for one room seems very high to me. But I don’t know the market rents in your area, so I could be wrong. Maybe you could partner up with someone with good credit and get a duplex together. Just throwing things out there. Good luck.
It’s my understanding that bad debt falls off your credit report after 7 years, but if you challenge it, the clock starts over. So I suggest that you leave the repo and the 7 year old unpaid credit card alone.
Other than that, stand up on your hind legs like a human being and pay off your debts.
I can’t even imagine why anyone would be willing to ruin their credit over a $200 judgement. Just pay the darn things off.
You should be able to arrange a payment plan over the student loans. Then make the payments and they will start showing up on your redit report as paid on time.
Unless you learn to cntroll your own finances, you will never make it as an investor. Investing is all about controlling the financial aspects.
If you want to invest in real estate, and not just circle around the edges, you need god credit. You get good credit by showing willing to pay your bills-- not by trying to figure out some cheat way to get good credit without actually having to pay your bills.