How to Get an Investment Property With Bad Credit

By Tom Burchnell

Whether you live in a college town, a city with a vibrant downtown scene, or an agricultural area, real estate is always a sound investment. It’s likely to appreciate long-term, it doesn’t tie up significant cash, and you have control over the asset compared to other investment methods. 

That said, buying real estate is cost-prohibitive—and, if you have bad credit, the method may seem too far out of reach. 

If you’re asking yourself, “Can I get a rental property with bad credit?” you’ve come to the right place. In this guide, we’ll explore how to buy an investment property with bad credit to help you take control of your financial future. 

Can I Get an Investment Property With Bad Credit?

Even though investment loans for poor credit can be hard to come by, purchasing a secondary property isn’t altogether impossible. 

First, remember a cardinal rule—before you invest, make sure you can put food on the table. Don’t forsake comfort, stability, or your lifestyle for a home that you may never live in. 

That said, let’s explore some basics of real estate investment for buyers with a low credit score. 

Improving Your Credit

Before you start browsing for properties, take a step back. If you can’t secure an investment property, you’ll still have to fix the problem surrounding your credit. So, making a plan to improve your credit (and then acting on that plan) is the first step to take before investing in any asset. 

Take the following two measures to increase your bad credit score:

  1. Ensure that all of your bills are paid on time every month
  2. Decrease your overall debt by
    • Replacing large, high-interest loans with smaller, lower-interest loans
    • Making larger payments toward your loans

Decreasing Your Debt to Income Ratio

Lenders don’t just examine your credit score before approving a loan—they also check your debt to income ratio (DTI), the percentage of your income that’s used to pay off loans each month. Lenders typically like to see a DTI below 36%, with no more than 28% of your income being used for your primary mortgage. 

Decrease your DTI ratio by:

  1. Increasing your income, which you can accomplish by:
    • Picking up a second job
    • Finding a higher-paying job
    • Asking for a raise at your current job
  2. Decreasing your debt (see the tips in the previous section)

Choosing the Right Property

Lenders don’t approve loans without considering the value of the collateral—the property they’ll repossess if you can’t pay back your loan. So, before you apply for a loan, make sure you’ve chosen a desirable property. 

The property you choose should be:

  • Insurable – It should be outside of a flood or high wind zone and feature a relatively new roof or exterior cladding components (i.e., windows, doors, siding)
  • Stable – It should be located in an area with a stable supply of renters, and preferably be used for long-term residential rentals instead of short-term vacation rentals
  • Profitable – It should be affordable enough and incur low enough maintenance costs to allow you to turn a profit

How to Buy an Investment Property With Bad Credit

The steps in the previous section are general, but they’re crucial for real estate investing while ensuring your financial health. Now, let’s explore how to purchase an investment property with bad credit step-by-step:

  1. Make a plan – Follow the advice above to make (and execute) a plan for improving your credit. Another part of planning is calculating your predicted profits—this will show your lender that you’ve thought long-term about the investment.
  1. Search for a property – While no property will be perfect, you should do your best to find the most ideal investment. Follow the advice of the previous section for finding an insurable, stable, and profitable property, but don’t forget about other important elements like:
  • Property size
  • Location
  • Proximity to your primary residence
  • Maintenance costs
  • Property taxes
  1. Determine your funding source – We’ll discuss this in more detail in a later section, but you’ll have to secure funding before you can complete your property purchase. Whether you plan to liquidate an existing asset, apply for a loan, or buy in cash, make sure that you’re prepared to foot the bill before you place an offer. 
  1. Complete the sale and start earning – Once you’ve closed on the property, start using your new asset to your advantage. Get renters into the property as soon as possible, and start using your additional income to improve your creditworthiness in preparation for future investments. 

7 Property Financing Options for Buyers With Bad Credit

As we mentioned in the previous section, you should be confident in your ability to pay for your investment before you submit an offer on your investment property. Let’s explore a few methods to do precisely that.

#1 Traditional Lending

No-credit-check investment property loans simply don’t exist. Every lender will perform a thorough credit check to determine your creditworthiness before issuing you a loan. 

However, getting approved for a traditional mortgage loan with bad credit isn’t impossible. And, in most cases, applying for a typical mortgage with a well-established, FDIC-insured bank is the lowest-risk choice for real estate investors.

Before applying for a traditional mortgage, make sure to:

  • Review your credit history and prepare justifications for less-than-ideal elements of your credit report
  • Gather pay stubs, W2s, income tax returns, and child support documents (if applicable) to show proof of stable employment and income
  • Check that your identifying documents (e.g., driver’s license, passport) are available and not expired

If you have bad credit, pack your patience—you’ll likely encounter a lengthy loan approval process with lots of communication from your mortgage lender and their underwriters. 

#2 Owner Financing

In some cases, property sellers will offer owner financing, providing buyers with a long-term payment plan without involving a fiduciary. 

Owner financing can provide a flexible option for savvy investors with low credit scores—you can more easily plead your case with an individual or a small business, and sellers may have sympathy for your financial situation. 

But beware of the risks, like:

  • High or variable interest rates
  • Demands for as-is property sales
  • Wire fraud during escrow and deposit transactions

#3 Specialty Loans

Depending on your marital status, occupation, location, or other factors, you may be eligible for a specialty loan. The US Government offers a variety of specialty loans for buyers who meet certain criteria, including:

  • FHA loans
  • VA loans
  • First-time homebuyer loans
  • Loans for Native Americans
  • Agricultural property loans and grants
  • Manufactured home loans

These loans have specific criteria, and you should ensure that you’ll meet the requirements before applying. That said, they can provide an alternative to conventional lending if you don’t have cash available for a real estate purchase. 

#4 Sale-Leaseback Programs

A sale-leaseback program is an alternative solution for homeowners who want to get equity out of their home. It allows you to sell your home, converting the equity you’ve already invested in your home to cash, while staying in the home as a renter. Let’s explore what this process would look like for a homeowner looking to purchase an investment property:

  1. The customer would sell their home to a sale-leaseback program for its fair market value, converting the home equity to cash with an option value to eventually repurchase the home or move.
  1. The customer would use a portion of the sale price to pay off the remaining mortgage on their home.
  1. The customer can rent the home back until they’re ready to move or buy it back at a later time.
  1. The homeowner would use the remaining proceeds from the sale-leaseback to purchase an investment property in cash or put a deposit down for a loan. 

Sale-leaseback programs offer flexibility for homeowners who want to stay in their homes and invest—no matter their creditworthiness.

#5 Sell Another Investment Property

If you already own a primary residence and an existing investment property, consider selling the asset that will produce the profit you’ll need to fund your next property purchase. 

For example, if your primary residence is worth $350,000, your existing investment property is worth $200,000, and you’re interested in purchasing a new investment home for $100,000. In this scenario, you could sell one of your existing properties to foot the bill. 

#6 Split Ownership

If you have a trusted friend, colleague, or partner who’s also interested in investing, consider purchasing an investment property together and splitting responsibilities, ownership, and costs. 

But make sure to consult with an attorney to produce an airtight agreement between you and the other owner(s) to mitigate the risks of joint ownership. If your ownership partner abandons their responsibilities (physical or financial), you’ll still be responsible for:

  • Property taxes
  • Maintenance and its associated costs
  • Income tax filing
  • Compliance with local rental property regulations

#7 Hard Money Loans

A hard money loan is a great way to finance an investment property, as this type of loan is based on the value of the property and not your income or credit report score. A hard money loan is a type of bridge loan for bad credit that’s most common with house flippers, as hard money lenders typically have higher rates and a shorter payment period than a conventional loan. 

Buy an Investment Property With Help from a Sale-Leaseback

When learning how to buy an investment property with poor credit, the process can seem intimidating. You have numerous financing options to consider, and if you recently overcame a financial hardship, your future may seem uncertain. 

That’s where a sale-leaseback comes in. Explore alternatives to home equity loans, conventional mortgages, and refinancing, no matter your current financial status. If you own your home, you can convert your hard-earned home equity with bad credit into cash in just a few steps. 

Key Takeaways

Whether you’re trying to fund a second home or investment property purchase, financial solutions like sale-leasebacks offer a quick, simple way to convert your home equity. Learn more by talking to a financial advisor, considering all your options, and take back the reins of your financial future. 


CNBC. Real Estate is Still the Best Investment You Can Make Today, Millionaires Say—Here’s Why. 

Investopedia. What Constitutes a Good Debt-to-Income (DTI) Ratio?. 

SmartAsset. Should I Get a Loan Through a Mortgage Company or Bank?. 

US News. Complete Checklist of Documents Needed for a Mortgage. 

US Government. Mortgages. 

Investopedia. Hard Money Loan. 

Tom Burchnell
Written by Tom Burchnell
Director of Product Marketing

This article is published for educational and informational purposes only. This article is not offered as advice and should not be relied on as such. This content is based on research and/or other relevant articles and contains trusted sources, but does not express the concerns of EasyKnock. Our goal at EasyKnock is to provide readers with up-to-date and objective resources on real estate and mortgage-related topics. Our content is written by experienced contributors in the finance and real-estate space and all articles undergo an in-depth review process. EasyKnock is not a debt collector, a collection agency, nor a credit counseling service company.