Everyone makes mistakes at some point in their lives. Sometimes, though, the mistake can cause you to head to prison. If you’ve paid your debt to society and are now free or on parole, it can be frustrating to find steady work. With the potential for massive profits and the freedom to set your schedule, real estate investing can seem incredibly tempting for someone like you. But is this an industry that would welcome someone with your background? Can a felon be a real estate investor? It depends. A felon’s main challenge is finding a hard money lender who is willing to work with you. If your felony involves crimes of moral turpitude or is financial in nature, you’re going to have a challenging time getting a loan from any type of lender.
But not all hope is lost! There are a few ways you can break into this industry that won’t necessarily involve getting financing. Let’s dive into know about “Can a Felon Be a Real Estate Investor?”.
Can a Felon Be a Real Estate Investor?
As a real estate investor with a criminal record, the main thing that’s going to stop you from investing is finding a hard money lender. Hard money lenders are hesitant to work with felons, but this isn’t true across the board.
What is a Hard Money Lender?
Hard money lenders provide loans based on the value of the asset and not so much on your repayment history or debt-to-income ratio (like a traditional mortgage). Their loans come with terms that include a short timeline for repayment and a higher-than-normal interest rate.
The good news is that hard money lenders rarely have income requirements that traditional lenders will have. The bad news is that they have higher interest rates and shorter . There are a few other stipulations that come along with hard money lenders. Check this article for more information.
What to Do If You Have a Criminal Record
I recommend going to your potential hard money lender and asking them what their stipulations are for working with clients with a criminal background. Make sure you find out this information even if you’re only found guilty of a misdemeanor, as that may hinder your progress, too.
In most cases, misdemeanors are okay, but that isn’t a hard and fast rule. Be transparent and honest with your lender to not waste time starting a relationship with a business that will deny you later on.
What Crimes Would Prevent Me from Getting a Loan from a Hard Money Lender?
If your felony is considered a crime of moral turpitude or involved finances, you’re going to have an uphill battle finding a lender. These two categories are often non-starters for lenders of any type. That said, it’s still worth asking around to see if there is a lender who is willing to take the risk on you.
Crimes of moral turpitude involve crimes or other conduct that are considered especially vile or egregious to society. While this isn’t a definitive list, some of the crimes considered to be in this category include:
- False Pretenses
- Malicious Destruction of Property
- Knowingly Receiving Stolen Goods
- Transporting Stolen Property
Financial felonies, or white-collar crimes, involve the intentional theft of money from the victim. Felons convicted of these crimes will have a particularly difficult time getting financing. These crimes include:
- Fraud (of any sort)
- Willful Tax Evasion
Again, these are not definitive lists. Check with your potential lender to see which crimes they consider to be deal-breakers.
Are There Any Options for Felons to Start Real Estate Investing?
While it may seem like the cards are stacked against you, there is hope. The good news is that most states will allow a former criminal to get their felony expunged after a certain amount of time. It varies depending on your state laws, so consult your attorney. They’ll guide you as to the timeframe and how quickly you can get started on the paperwork to petition the court for your crime to be expunged.
While you’re working on that, you can start your investing career in a way that may involve little to no financing at all. The method I’m talking about is what’s known as “wholesaling.”
How Wholesaling Works
When you become a wholesale real estate investor, you may be able to get around needing financing altogether.
Think about wholesaling the way you think about buying options in the stock market. All wholesaling means is getting a property under contract and then selling that contract to someone else.
The reason you might not need to seek financing for a wholesale deal is that you’re not taking ownership of the property. All you’re doing is selling your contract off to someone else.
There are a few ways you can make wholesaling work for you:
- Sell the contract at a fixed price – “I’ll sell you the contract on this house for $10,000.”
- Sell the contract at a fixed price + a share of the profits – “I’ll sell you the contract on this house for $2,000 and 20% of your profits.”
- Sell the contract for a share of the profits – “I’ll sell you the contract on this house for 50% of your profits.”
Don’t Want to Wholesale? Consider Working Your Way Up
If wholesaling doesn’t appeal to you, there may be another way you can become a real estate investor. It just may take longer than wholesaling would.
Felons who cannot get financing have still worked their way into the real estate market by becoming general contractors. As you begin to build your contracting business, you’ll inevitably create relationships with realtors, landlords, and other property owners.
Having these professional relationships established will help you slowly break into investing as you may be able to use these connections to source hidden gems of properties. Your proven track record for excellence in your work may also lead to you getting private financing or finding a business partner through these contacts.
In addition, having the skill set of a general contractor will help decrease your costs if you decide to fix & flip houses for a profit. While it might not be as straightforward as wholesaling, general contracting may be an alternative route that helps you build your professional network and gets you into the industry.
So don’t feel like real estate investing is out of reach if you’ve got a felony on your record. Yes, it will be challenging for you to find a lender who is willing to finance you. It will be tough if your crimes are of a particular nature or are related to fraud in any shape. But you may still be able to break into investing in properties and building your real estate business if you give either of these methods a shot.
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