using someone else's credit for REI - Posted by Tom K

Posted by LeasePurchase on December 06, 2005 at 18:24:04:

I use Credit Partners all the time. The key is to set things up to minimize the risk. I only use a Land Trust.

Before any Credit Partner is asked to purchase a property we already have a resident that has paid a large deposit. We also purchase at approximately 70 to 80% of value. My deal with my Credit Partners is to simply split any and all profits (i.e. Upfront Equity, Cash Flow, Note Reduction and Appreciation) over a three to five year period.

I have seen some organizations that use other people’s credit and do nothing more than promise to Lease Purchase the house out to a Tenant Buyer, give the Credit Partner $5000 and maybe some cash flow.

I had a guy call me the other day that did this with a company in Utah and the house has now been vacant without a Tenant Buyer for 5 months. He called them to ask what was going on because he go a Notice of Default. They told him they couldn’t find a Tenant and that he was on his own. Of course they didn’t / couldn’t give him his $5000 either.

I came in and made his back payments and put a Resident in within 3 weeks.

You’ve got to be careful for sure.

using someone else’s credit for REI - Posted by Tom K

Posted by Tom K on December 06, 2005 at 16:30:19:

I have seen several people advertise in various places on the web that they are looking for someone with strong credit to partner with for real estate transactions. Assuming such a person were trustworthy (I know, big assumption but make that leap with me), is this even a reasonable arrangement to enter into as someone who has very good credit and some money to invest? For my part, I want to be as passive an investor as possible so on the surface, it is attractive but I’m sure there are many potential pitfalls and am looking to you the experts to help with (1) how someone would even use my credit (not my cash); (2) what are the risks (I’m sure there are many)? Thanks in advance for any advice.

Re: using someone else’s credit for REI - Posted by Dave T

Posted by Dave T on December 08, 2005 at 14:30:23:

There is a difference between using someone’s credit, and having that someone contribute cash to the deal.

If you just need someone else’s credit, then you find a “credit” partner to add as a co-borrower (or as a co-maker if the lender will allow it) on your mortgage loan. You are only using your partner’s credit to qualify for the loan. You are not asking your partner to contribute any money to the deal, nor asking your partner to make any of the monthly payments.

What percentage of the profits you will give your partner in exchange for his credit is worked out by mutual agreement.

Taking on a partner who will contribute cash AND credit is another scenario all together.

If you are in a position to be a credit partner (not a cash partner), then you will also want to have some protection in the deal. Talk with your attorney about ways you can secure your profit. If you are not going to be on title, perhaps a you and the investor can agree to a performance mortgage for your profit.

Another pitfall is that your credit will be linked to the investor’s performance. If he defaults on the loan, the lender will look to you to cure the default. Meanwhile, your credit history will be tied to your partner’s performance on this loan. If the lender forecloses, the foreclosure will also appear on your credit report.

Nothing illegal here unless there is more to the deal structure than you have described.

Re: using someone else’s credit for REI - Posted by george

Posted by george on December 06, 2005 at 21:07:37:

I’ve done partnerships with me being on either side of the arrangement.

I supplied the credit because my partner didn’t have the financial ability, but in other cases my partner has supplied the credit because I had too many loans in my own name.

All the deals worked out because there was trust with people I knew. In all the deals, the person whose name was on the loan retained title for added protection.


Re: using someone else’s credit for REI - Posted by wes

Posted by wes on December 06, 2005 at 17:11:36:

While I am sure there are legitamate ways to use other peoples good credit. The term most associated with this practice is “straw buyer”. You need to understand the difference and what is legal and what can put you in the “big house”.

First you should “google” the term “straw buyer”.

Then after you see how it is used in mortgage fraud, you can then look at how to do it in a legitamate way that will keep you out of trouble with the law.

Re: using someone else’s credit for REI - Posted by Tom K

Posted by Tom K on December 06, 2005 at 18:08:23:

Thanks Wes, that is exactly what I was looking for. I’m not looking to push the envelope on anything so I’ll steer well clear and stick with what I know.