Tuesday, July 20, 2010

The age old question ' "CASH OR CREDIT"?

This is very, very important and again, this is something that books are written about, let alone blogs - credit is a critical piece for you as an investor.  If you haven't heard this a thousand times already then you are not listening.  CREDIT IS MORE IMPORTANT THAN MONEY!  Let me say it again.  Your good credit report and good credit scores are more important than money! 

If you remember nothing else from reading this, remember this: Your good credit is more important than money.  If you have good credit, you can get any amount of money you want within reason.  However, if you have all the money in the world, you cannot buy good credit and find people to do deals with you unless you pay cash.  Some people with horrible credit are forced to pay cash for everything.  Don't be one of those people!  I know a prominent real estate investor who pays cash for all his deals as he does not have any credit. 

There is the whole principle of leverage - another topic of a blog - that you miss out on if you have to pay cash. As a real estate entrepreneur, you want to leverage your money and balance risk with reward. You are not able to do that if you don't have amazing credit. You will not be able to go to the bank and get an 80-20 loan or have them finance 100% or do a couple of other techniques unless you have good credit. (Good credit scores are any over 700, 850 is a perfect score). You do not have to have money if you have good credit.

I have done a number of deals with little or no money because I have excellent credit.  For instance, you can get a mortgage at 80% LTV (loan to value) and at the same time arrange for an unsecured line of credit for the other 20%.  In this example, you have used your credit to finance the home 100%.  Your credit is very, very important!  Unless you can develop good credit, you will not have a long-term future as a real estate investor.

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