Welcome back to another episode of Ask Marco where I answer your investing related questions.
Today’s question comes from Aaron and he asks, hi Marco. I’m a big fan of your podcast and I’ve been doing my due diligence and research on real estate investing for a couple of months. Now. I really want to be a real estate investor, but my financial and credit situation is not good. Can I still be a real estate investor with low income and poor credit?
Interesting question, Aaron. Short answer, no, but don’t be discouraged because I want to explain what you need and what you need to do so it just makes it tough. If you have low income, it might make it difficult to qualify for financing. Maybe there are loans out there. Again, believe it or not, that are asset based and they don’t even look at your income. So you could literally have no income, no assets may be no job and qualify.
Does that sound familiar? Sounds like history repeating itself from the a 2008 great recession. Remember the housing market crash of 2006 but that’s not where we are today. That’s actually not the case. So let me break this down for you. When it comes to real estate investing, you need what I call the three CS, the three CS, and that is cash, credit and competence. Let’s break this down. The first thing you need is cash. So this can be a function of your income, but if you don’t have enough income to save up the investible cash, the savings that you need for the down payments to purchase your real estate, then you obviously need to do something about that. So what do you do? Well, you need to focus on building your top line, meaning the revenue or income you get from your job, your profession, your business, whatever it may be.
And if that’s not easy to do because you have a ceiling that you can’t get through, you’re capped at an hourly wage or you just have limitations, then what you need to do is one of maybe two things. One is add additional streams of income, meaning another job starting up a small business or you need to increase what you’re making. If you run a small business or you’re professional, how can you build or scale your existing revenue and income and increase your cash flows? So the point is is you need to rapidly increase what you can save. Save as much as you can, as quick as you can do that, however you need to do that. So second job, third job, a scale your business partner with somebody. Whatever it takes, you need to increase the amount of income and revenue that you have so you can save more.
So that’s the cash. The credit piece is also critically important. Why? Because today, so many things depend on your credit profile and your credit score. So whether you’re applying for a credit, a car loan, a lease, you’re renting a property and they pull credit to check your credit history or even a mortgage loan, whether for your principle residence or for an investment property. At the end of the day, all roads lead back to your credit profile. And so it’s important to have good credit. If you don’t have good credit, you need to start working on that and start building it. And that’s a topic for another day. In fact, I’ve actually did an episode last year, 2019 about credit and credit repair and you might want to look that one up, but it is important to have strong or good credit. You know, anything over six 80 is good. If you’re seven 20 as far as a score is concerned, that is much better.
In fact, over seven 20 is considered excellent credit. Some people will say seven 40 but you’re in that range. But you can qualify for financing, mortgage financing, even with a credit score below six 80. Uh, keep in mind it’s not just about the score, it’s about your entire credit profile. It’s really what is on your credit reports. That is important, not just the score itself and besides, there’s probably about 12 different scores as well. There’s only one in particular that lenders use from a mortgage perspective. The other ones are used for credit cards or car loans or leases and whatever it may be, and then lastly, the third C’s competence. The competence piece is really just your level of knowledge and understanding, so that’s an easy one to work on because there is so much good content and free content out there and books that you could order from Amazon are very inexpensive.
You could order books from $10 to $20 and if you just get yourself two three, four, five of those books on real estate investing and finance, you can become very knowledgeable and so as you build your competence, you’re going to become more skilled and your confidence level will go up. Those are the three things you need. Now, here’s the solution that I mentioned to you before. Even though I’ve given you some suggestions and tips here so far. If you want to be able to invest in real estate, given the situation and scenario that you’re in today, what you can do is partner with someone else who’s like-minded and has the same vision and goals that you do and invest in a rental property or two together and so you can provide one of two things, sweat equity. You can do the work on the front end and throughout the whole process and just bring in up silent partner who brings in the credit and or cash or both or most of both.
So you can put up the sweat equity and do most if not all the work. The other thing you can do is whatever cash you have on hand today, if it’s not enough for a down payment by yourself, you can kick that into the kitty and pool your resources with your partners. So that could be cash, could also be the work you put in. But at the end of the day, if you’re both bringing something to the table and you have a mutually beneficial agreement between the two of you and you can work well together, then you can get started sooner than later. So just something to keep in mind. Just be careful with partnerships. You want to make sure you get in bed with the right person, otherwise it could be ugly and messy down the road. All right, I hope that helps. Thanks for the question Erin, and if you have any other questions, contact my team here and we’ll help you out. So if you’re listening to the show and you are not a subscriber, click that purple button in iTunes on the podcast app or wherever you’re listening. Just remember to subscribe to the show. Do you have a question? Just go to passiverealestateinvesting.com and click on the Ask Marco button at the top and I will try to get to those questions as quickly as I can.
Thank you for listening. I’ll see you on our next episode.
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