I am a 26 year old from the Seattle area. I’ve currently got about $400 in savings and a credit score of 550 (I ruined it in college) and a steady job of about 50K a year (pre-tax). I recently got into personal finance for the reasons above and was very impressed with Robert’s book, but I’m not sure where to start. I’d like to get into real estate investment (Robert makes it sound like the best plan for me) so that can start to generate some assets. Is there really a way for me to begin investing in real estate with poor credit and a lack of capital? I’m willing to put the work into learning, but I’d like some advice and possibly some reading recommendations. Any help would be great!
Rich Dad’s message is to invest your discretionary income with the goal of having your lifestyle supported by the income from your investments.
Real estate is not the only investment that can do that. Your main focus really needs to be your credit score. Your secondary focus needs to be your available investment capital. It may be possible to invest in real estate without cash or credit, but long term success as a real estate investor generally depends upon having both.
Thanks for the advice. I’d like to improve my credit score by increasing my income. That is why I am interested in the ideas found in the Rich Dad book. Barring the warning about my credit, is it still possible to pursue this avenue? I’m willing to put work into it, but I’d like to know if I can and what to start reading.
I agree with Dave T. Your problem is your credit score. Your credit score is developed by an algorithm that the 3 credit bureaus put information into. Since you know that, you also know that the algorithm can be adjusted to get a score that you want. I say this because real estate is a credit business. If you don’t have credit you can do things in the real estate world but you will not be in real estate. It is like saying you are in baseball. What comes to mind is a pitcher or outfielder or so some such person. But if the person is an umpire or a ball boy yes they are indeed in baseball but they are not players. To be a player in real estate you have to have credit.
Solving bad credit is not solving a financial problem it is solving a behavioral problem. I am afraid that if you start doing things in real estate that make you a chunk of cash every month and you don’t change how you act with money your credit will not improve and you will never get into real estate. This is like real estate agents. Most of them (even the successful ones) don‘t own any real estate because they just keep selling houses for commissions.
If you don’t live within your means and pay all your bills every month you will never get your credit straight and never get into real estate. What I did was I realized that I can’t get my credit straight until I eliminated all late payments. I had to make sure every bill got paid every month. To do that I went on each of my creditor’s websites. I set up automatic payments on each of them. I only set up the minimum. That stopped all the late payments and ensured that all bills get paid. I then went in purposely to pay any additional payments.
You may say but if I do that I won’t have enough money left over for the rest of the month. That is where behavior comes in. What you have to do is not have enough money for the rest of the month. Remember whose money is it anyway. It is not yours to spend on the movie or the meal. It is the creditor’s money. What that did for me is motivate me to get those guys paid off.
Let me ask you a question. How many credit cards do you have now? 4 or 5 credit cards? If you can’t pay 4 or 5 credit cards how are you going to pay 20 mortgages every month? And these mortgages can’t be late. You get 20 checks in from different people drawn on different banks coming in different days with different amounts and you have to make sure they get in and clear their banks and there is enough money in your account to pay the mortgages.
If that sounds like it is more complicated than paying a few credit cards you are right. So if you can’t fix your credit you can’t do real estate either.
Here is a copy of what I wrote to ReGrasshopper. He had the same question as you.
213 Real Estate Investing / Carlton Sheets, Beginners, Courses, Gurus, General Forum / Re: Beginner Needs Play-By-Play on: August 06, 2008, 08:27:52 AM
ReGrasshopper,
I’m a newbie to real estate investing and have been actively making offers for my first property for the last couple of months. I’m sure my story is not unlike others here.
At one time, I was a financial mess. I had a bunch of credit card debt and bad credit. Like yourself, I thought that real estate investing could get me out of trouble. I bought the Carleton Sheets course. I soon learned that I had to get my financial house in order before that could happen.
The turning point for me was purchasing some Rich Dad books and cd’s. I learned my lifestyle had to change.
I scaled my spending back to a bare minimum. I took a job in the industry I work in now and freelanced/moonlighted on nights and weekends. I started paying down my debt and repairing my credit. I was miserable at that job but I was making slowly making progress. Then, I got laid off from that job. In hindsight, that was the single best thing that ever happend to me!
I now work for myself and have paid off all of my debt. My vehicles and equipment for work are paid for. I have “0” debt and have ample savings to start investing and have reserves for a rainy day. It took some time and sacrifice for me just to get to the point of being able to invest. The CPA I use for my small business has a real estate brokerage as well. I’m working with a great agent who is also an appraiser and investor. She understands exactly what I’m interested in and has actually talked me out of properties that weren’t good for me. Conversely, she has brought properties to my attention that I’d have overlooked. I view this as the start of my “team”. This is my starting point for investing.
For education, I would read or listen to Rich Dad, Poor Dad and The Millionare Next Door. I just downloaded propertymanager’s book and read the first half of it in one sitting. In a word, it’s SOBERING! I recommend it.
My advice to you is to get control of your business and finances by making whatever changes are necessary. Get a realistic view of where you are and where you will be if you don’t change anything! Adjust your lifestyle and live well within your means. Repair and monitor your credit and build up some savings. Then go at it!!
While I agree in principle with all of you, I have to take issue with the whole credit thing as it relates to real estate. I’ve had great credit, horrible credit, and everything in between…I can state with absolute certainty that having great credit (even perfect credit) won’t make you wealthy in the least bit. If anything it aids in keeping you poor by making it easy to get into debt. And the fact that he has no capital is actually a good thing because he doesn’t even know what he’s doing yet. If he goes dumping money into a real estate “deal” at this juncture he would almost certainly regret it.
IMO it all boils down to the application of proven strategies (real estate related or not) which begins with education. He’s already started that by reading Rich Dad. But his question is about getting involved in real estate with no cash or credit, and he can absolutely begin investing right now with neither. You could wholesale a junker if you are broke, have a 300 credit score, and just got out of prison. Yeah I know wholesaling isn’t a tax-advantaged wealth builder and you get no equity appreciation, but the guy said he wants to get into real estate with poor credit and a lack of capital; you’d be doing him a disservice by not telling him that he indeed can (and should) begin learning how to do exactly that.
Screw your credit score for now…make money!
wholesaling
subject-to/owner financing
cooperative assignments
options
None of these requires credit of any sort, nor do you necessarily need any capital (perhaps a few grand for subject-to down payments but even then not always). All he really needs to spend money on is education, marketing, and maybe a cheap pre-fab website &/or phone system to capture leads. $50K/year salary is probably enough to do all these things while not negatively altering his lifestyle. Better to invest in yourself than a new car or big screen tv.
Disclaimer: you WILL need credit & capital if you plan to get involved in commercial.
Rich Dad Poor Dad is an amazing book. I think I read it first about 10 years ago and I admit that it changed my perspective completely. Obviously real estate investing is a journey and no one can just wake up tomorrow with a huge portfolio and finanicial freedom. I would suggest that your first step should be to continue to learn as much as possible about real estate and investing. Also set a goal and plan out the steps to obtain that goal. For example, if by this time next year you want to own a single family rental home, start learning about your market and map out the exact steps needed to acquire a rental property.
Armando, I agree with NSU. There are things you can do in RE that do not require you to have a great score. No matter what you do, you wont wake up in a week with a 750 credit score. So why not make some cash that will help you pay off things on time and over time build your score? All you need is desire, a REI club, a few hunderd bucks for marketing, purchase and assignment contracts and a phone. NO reason for you to keep reading books and working on your credit when you could be stacking up some extra cash while doing your learning.
At this poin with the current lending restrictions in place, I know of people with great scores, great jobs and it is still a task to get financing from banks. Credit at the stage you are in is not that important. Yes I agree you need to build it up because you will want to branch out eventually and do other things in RE that will require you to have credit. For now, a few thousand a month or even every couple of months sounds like it would do you good.
FYI, I dont have a great credit score by any stretch of the imagination, however I am working on 6 wholesale deals atm, looking to close at least a couple and I will use the money to pay off some debt and reinvest in my business. It can be done!
Your income has no affect upon your credit score. Of all the factors that affect your credit score, your credit history and the percentage of your credit limit you have available are major contributors to your credit score. Paying your creditors on time (no late pays), keeping your revolving credit balances at or below 30% of your credit limit, and not opening a new credit card unless you really need it will go a long way toward repairing your credit over time.