Article Directory :: Finance & Investment Articles

Does Your Real Estate Credit Depend On Your Personal Credit?

By Marco Carbajo

Republish: EasyPublish™ Published: 11Mar2012 Word count: 712 Viewed: 27 time(s) Get Free Content For Your Site

There is no doubt there are tremendous opportunities in the real estate market today. Home prices and interest rates are at an all-time low making it a great time to invest in real estate.

However, there are three major problems facing many real estate investors in today's economy. First, there is a lack of credit availability since lenders are stricter than ever before.

Secondly, their capacity of credit is limited, since many real estate investors rely on their personal credit to secure funding.

Finally, whether investing in residential, commercial, industrial, or retail real estate, many investors make the mistake of buying real estate directly in their own name.

This makes you personally liable for any lawsuits which can lead to serious financial hardship and may lead to personal bankruptcy.

To avoid this, many experienced real estate investor's use a legal structure such as a Limited Liability Company (LLC) for each real estate investment owned. This is known as asset separation because one property cannot affect the other in the event of a bankruptcy.

While asset separation is one thing, separating your personal credit from your real estate credit is another. Unfortunately, many investors cannot distinguish between the two because using personal credit for real estate investing is all they know.

The advantage of establishing a legal structure for real estate investing is that you can establish credit in your company's name. This enables you to stop putting your personal credit and assets at risk in order to purchase or fix up properties.

Take the time to review our Business Credit vs. Personal Credit comparison and decide for yourself if establishing credit for your company is a goal worth pursuing.

Make no mistake, business credit offers tremendous real estate leverage and allows you greater purchasing power so you can increase your profits in an investment without putting your personal credit at risk.

Let's look at the following scenario:

Investor #1 - Maxed out Marvin

* Purchases a property for $40k using $35k from a hard money lender and $5k using a personal credit card.

* He renovates the property for $15k using $10k on a personal credit card and borrowing $5k from a family member.

* After repair value (ARV) is $99k.

Maxed out Marvin now has…

…$10k in personal credit card debt.

…a lower FICO® score from maxing out one of his personal credit cards.

…a higher debt to credit limit ratio…personal liability for $15k.

…a worried family member that he owes $5k to.

… to hold the property for 90 -120days before he can sell it.

Investor #2 Fearless Frank

* Purchases a property for $40k using his company's business line of credit.

* He renovates the property for $15k using $10k on his home depot business credit card for materials and $5k using a business credit card.

* After repair value (ARV) is $99k.

Fearless Frank has…

…purchased and renovated a property using no personal credit whatsoever.

…no personal credit card debt doing this deal…no impact to his FICO® score.

…no impact to his debt to credit limit ratio …no personal liability for this transaction

…not borrowed any money from his family member.

…to still hold the property for 90 -120days before he can sell it.

Which investor do you want to be?

With a creditworthy business you gain access to vendor credit lines with suppliers such as Home Depot, Lowes, and hundreds of others. These suppliers will extend credit to your business allowing you to purchase the products you need to renovate a property.

This is just one example of how you can protect your personal credit ratings when investing in real estate.

If you are putting your personal credit at risk to secure financing for your real estate investments consider setting up a legal structure and start establishing credit in your company's name.

EasyPublish™ this article - publishers click here

More articles by Marco Carbajo

Free Report!
Ten Essential Secrets Of Article Marketing ... Grab Your Free
Copy Now:

Need Content?
Regular Top Quality Content for your Blog, Ezine or Website ...
Delivered Direct,
For Free!
Click For Details