Real Estate investing with bad credit!

By being creative, you can play the game of real estate investing by using what is called Option’s investing.

This is just one technique of the Option’s strategy of investing but can be a power tool in your investors toolbox to help you control more real estate and build wealth.

An option is an agreement to you from the seller that gives you the exclusive right to buy a property during a specified time and at a predetermined price but does not obligate you to make the purchase - This is why it’s called the Option agreement.

You option to buy - You option not to buy.

Option investing works when you want to control more real estate with limited out of pocket cash or credit and works if you:

Have no credit!
Can’t pay cash!
Can’t get a loan!

I call this the “SWEAT OPTION”.

The sweat option works well if you have the ability to do the repairs yourself.

Your key’s in making a deal like this are:

You need to know the basics of real estate investing
You need the forms to make this happen
You need to know the market area
You need to know the laws in your state
You need to know how to determine the value of the subject property
You need to know how to do a title search

Most importantly you need to know how to find sellers that are motivated enough to work with you on this strategy of investing.

I recommend that you farm out your market area looking for properties that are what we call in the industry FSBO’s (For Sale by Owner).

Go to your local library and start your research by looking at old newspapers starting with newspapers that are 90 days old and work your way through the FSBO’s section making a list of possible deals. Working on a list of 30 or so.

Call and see if the property is still on the market, if so make an appointment to see the property! You will find that none owner occupied properties work the best and you are looking for properties that can not compete well with other homes do to repairs that need to be done.

Let’s say the seller has a property that is worth $100,000 after the repairs.

I like using a 5% rule for repairs - If the value of the property is $100,000 after repairs, I do not want to spend more than $5,000 or 5% in repairs.

I would negotiate say an option purchase price of $80,000 for a period of 6 months or more and in the option agreement to perform the repairs at my cost to be my consideration for the option of purchase or should I say the $5,000 in repairs, materials cost and labor to be considered as credit towards the purchase of the property (My down payment) and what ever monthly payment we agree to and credit amount of that monthly payment. So let’s say we agree to pay $600 a month with $100 a month credit towards the purchase.

You start you’re repairs and complete them in 30 days or less and let’s say you purchased $1,500 in materials.

Now you place the property on the market because you have the option to purchase “You have taken control of the property with your option”.

Let’s say this deal has taken you 90 days from the beginning to the end.

You find your buyer let’s say at a great deal of $95,000 - $5,000 below market value at this point you would simply exercise your right to the purchase option and do a simultaneous close.

Now let’s run the numbers

Your option purchase was $80,000
Your option credit of $5,300 (Repairs, materials cost, labor & monthly credit)
Your purchase price after credits $74,700
Your buyer purchase price of $95,000

Leaving you a gross profit of $20,300

You had out of pocket material cost of $1,500
You had 3 payments of $600 each with $100 for the credit purchase with an out of pocket of $1,500

Carrying cost of $600, (Real estate taxes $300 &$300 Utilities)
Advertising cost $300
Closing cost $1,300

Your net profit $15,100

You simply took control of a $100,000 property for $3,900 (payments, materials, utilities, and advertising) and turned a profit of $15,100 in 90 days!

Look at it this way you can make it a cash purchase at $80,000 and take control of one property or be a little creative and take control of the same property for less than $4,000. Both conservative and creative deals work in the world of real estate investing.

Options is defiately my favorite way to make money in real estate…you dont need credit, and there is virtually no risk!!


Except I like working with pretty houses that dont need fixing up.


I would also like to restict my investing to houses that don’t need much, if any, work. ;D
I would just like to ask a quick question…if the seller is clueless about rent credits, how do you negotiate or explain how the rent credits work, or how can you convince them to give you rent credits? I went and looked at a very lovely house that the owner has offered as a lease purchase, they have already came down on the price from $410,000 to $395,000, lease payments are $2200, but no rent credit. If this is the owners mortgage payment, is it feasible to ask for rent credit without giving more than $2200 lease payment? How does it benefit the seller to give a rent credit?

Hi Trecey,

I dunno about johnmichael, but i dont think we were talking about rent credits, personally, I dont know much about them.


Good Morning Trecey,

If I were you I would ask the seller how much of your rent is going towards rent credit…

If they don’t know what Rent Credit is, explain to them what it is.

Did you set this up as a lease option? or is this something they were going to do prior to meeting you?

Remember, Cover all basis!!! PROTECT YOURSELF!

Good Luck!!!


The sign outside the house lists the house as “lease purchase”. The first question I asked when I called about the property was about how much rent credit will be allowed. I guess my question is this— if the house’s mortgage payment is $2200 a month, and supposed they give me $500 rent credit, I am only actually paying $1700 a month. How does this affect the owner during the lease or when I exercise my option? What does the owner lose by giving a hefty rent credit?

johnmichael, or anyone,

I have a question. As the original property owner, why would I do this? I replied to a thread yesterday of someone wanting to do a sandwich deal like this, and I said that as a prop owner I would not agree to such a deal and if they did it behind my back they’d be breaking the lease and I’d evict them. (I hope I didn’t sound mean - I just wanted to present another side of the issue.) Then I’ve seen more posts about this and thought, “hmm, maybe I’m missing something!?!”

Am I? What’s in this for me? We’ve just started doing some lease options - our experience is in straight rentals. We’re fortunate to be in an area where people are lining up to do lease/purchases as their only way to buy their own home, but sooner or later I may encounter an investor looking to do this.

Trying to learn as much as possible…
Karla in Amarillo
P.S. my main reason (in my own mind) against doing this is “Why introduce a 3rd party into my property/my deal who I have no control over choosing/screening/etc?” Ok, so I am a bit of a control freak…but I also get burned less often than my investor friends who aren’t. :-\

Hey Tracey,

Think of your situation like this.

You have a property that your mortgage is 2200 a month. Your asking 2200 a month in rent OR a L/O to cover the mortgage. Thats no cash flow for you right? OK, than, would you give ME a rent credit if I were your tenant just covering your mortgage?
I know I wouldn’t!!!

But it never hurts to ask. Maybe you can pay 2500 a month and send that 300 in rent credit.

What exactly do you have planned with this property? Are you going to L/O your self? or find a T/B to take it? If this is the case. YOU in return want to give out the rent credits. Your just covering the mortgage. So to the T/B you would L/O it at 2500-2600 a month, make that few hundred a month, and maybe offer 2-300 in rent credit each month maybe more! up to you!!!
But I have no idea what you have planned…

Not sure if that answered your question…


Hey karlakr,

Just an FYI, if your market is all about Lease/Purchases, your going to make a fortune once you learn how to do them correctly!!

Good Luck!!!


Ok, that makes sense. For some reason I was thinking that since the rent credits wouldn’t be “credited” until I exercise the lease, that it wouldn’t make any difference. I was actually just pricing this house for a friend that will be moving to this area at the end of the year.

Yes, MONEY! That’s why we’ve started doing them. But what to do mean “correctly”. I’m pretty sure we’re doing it correctly. We’re just not really interested in leasing/selling to an investor who is not the one living in the property and buying it for their own home. I’m wanting to know if there’s some additional advantage that I’m not aware of to doing so?

Can you explain?


Oh im sorry, i miss read your statement on L/O’s, my bad!

Well if your market is hot, if you do tend to L/O to investors, you could do a split and make whatever they make off the sale of the house. I mean theres several ways you can work with investors.
Most of us will work with almost anything with a good profits!! “WINK WINK”


Ok, I was getting worried that I’m missing the boat. And here I am stepping on the toes of the people who are wanting to do these deals as the middle-person.

I guess I’ll just cross the bridge when I get to it - if an when an investor approaches me. I think I’m doing a pretty good job of not leaving any margin in the deal for someone else, as these are properties I’m selling this way because I CAN, not because I have to.

I went back and read all the way through the various posts on this topic and realized that there may be sellers out there dumping properties this way - those are probably the deals these investor/middle-people are wanting /finding. Right? Or am I still missing something?

Karla in Amarillo

There you go!!!

Sounds like your actually on the boat!!! Thats a nice thing about this web site, is you get to talk to other investors on these forums!!!

Good luck!!!



One question I have been concerned about in these l/o transactions is, how do you sale a property you don’t own or does part of the option contract stipulate transfer of ownership to the optionee?

As I have been reading the posts, I see that someone would give the option but if a T/B were entering into a property I was sub-leasing, how could I sell at the end of the lease purchase agreement period I have with the T/B if I don’t have any ownership interest? I hope I have stated my question clearly.

Your l/o contract should include a “right to assign” clause. From what I understand, this is something you would have to specifically make sure is in the contract, that way the seller is aware that there is a possibility that you might assign it over…I hope this is somewhat correct, If not, someone will come behind this message and give you the right answer :slight_smile:

It’s an Assignment clause that give you the unqualified right to sublet and/or assign, sell, transfer and convey any rights that you have to a third party without written notice, which will release you from any liability and will substitute the assignee in your place.

If you find the right real estate attorney, it wouldn’t cost very much, if anything at all to get a sample of a Real Estate Lease because they have contracts they can print up for to review and to get an idea of what you need. It doesn’t hurt to try.