Do I Need Good Credit To Do Deals The Way You Teach?

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“Here’s my question: my credit rating over here in the U.K. is terrible. Can I still do no money deals without this being checked?” – Andrew, Lancashire, U.K.

Joe: The answer is yes, absolutely. If you’re in the United States and you have terrible credit or you’re in the U.K., it doesn’t matter. You can still do these deals because it doesn’t require any credit. You’re never going to a lender. No seller is ever going to check your credit report if you do it properly. You can tell them that you have bad credit and they’ll still let you do it if you show them a path, that you’re competent and that your solution solves the problem.
 
Joe: That’s what we do in this process – we solve the problem of other people. We find the need and we solve it and we do it in a way that wins for them and wins for us. We’re not trying to screw some old lady out of her inheritance or equity in her property so she doesn’t have an inheritance for her kids. We’re trying to help her find the best possible option for that deal.
 
Joe: Sometimes the best possible option is for her to sell that property to us for a dramatic discount and she chooses to do that but we give her the other options as well and say, ‘You can do this. You can do this or you can do this. Which one makes the most sense for you?’
 
Joe: I remember as a real estate agent, going to some people (this happened frequently) and I’d say to them, ‘I can buy this property at this price and it’ll make sense for me to buy it at this price and this price is dramatically below what I could sell it for if I were selling as a real estate agent for you or listing it for you. If I sell it as a real estate agent for you, it’s going to take between two and six months to get it sold. If I buy it at this price down here, it’s going to sell immediately – I’ll do it tomorrow or in two weeks (as soon as we get clear title).’
 
Joe: Many times, they’ve said, ‘I just want to get rid of it. I don’t want to deal with it anymore. I don’t need that extra money. I can live with it if I get this money right here,’ and then we’ll close that deal because that’s the best option for them. But they understand that I could make them more money if I do it the other way. I don’t lie to them about that – I want them to know and I want them to be happy – I don’t want them to come back to me six months later and say, ‘You stole my equity’ – ‘No, I explained to you exactly what happened. Here’s what we talked about. I even wrote it out for you.’
 
Joe: By doing that, it made me the most ethical person in the room. I think that’s where you need to be. You always want to be the one who’s going to be watching out for other people. That means also that you need to be the one who’s most in control of that transaction. So whenever you get into a transaction, you want to make sure that you’re the one that’s in control.
 
Joe: So, your credit doesn’t matter. All that matters is that you have the willingness to do the work, to structure the deals and then turn around and sell it. Now, one more thing about credit: Sam Walton (the guy who built Wal-Mart) used to say, “I don’t trust anybody who hasn’t gone bankrupt at least three times.’ I think that’s a little extreme. Most entrepreneurs that I know have gone bankrupt in their lives, mainly because they did things incorrectly, i.e. they used loans, they used banks and they got underwater and upside down and they lost money.
 
Joe: That’s what happened to me back in 1991 – I lost a 17 million dollar business because I didn’t structure it properly. Now when the crash came again in 2007, everybody else was going under but it didn’t affect me because I didn’t build my business the same way – I built it in a way to where I wouldn’t be touched. And I wasn’t – I didn’t lose my business because of it. We had some stress because of it, too because we had some vacancies because people were losing their jobs everywhere so with a lot of the rental properties that I had, our vacancy rate went up. But we were able to maintain it because we kept the proper cash reserves. We didn’t have a financing problem.
 
Joe: There were a couple of properties we gave back because they were no longer viable, but it didn’t affect my credit because of the way we had structured the deal in the first place. So we were able to maintain and get through that process and still continue to make money doing the other types of deals that we were doing, plus that loss to the country made a lot of opportunities for investors like me who had some capital at the time to be able to make some money.
 
Joe: So anyway, back to my story with Sam Walton – he said he didn’t trust anybody who didn’t go bankrupt at least three times, but what that implies is that if he went bankrupt, his credit was terrible, too. So he built Wal-Mart and that enormous empire, that multibillion dollar empire, with bad credit, so this tells me and it should tell you as well, that you don’t need good credit to be able to make a lot of money. What you need is the ability to create value for the people that you’re working with and they’ll provide the money, whether it’s through seller financing or some other method.
 
Joe: You don’t have to use your own credit. You don’t have to use a bank. You don’t have to use your own cash to do this stuff. Never use your own cash for deals until you learn how to do it with no money. Once you learn how to do it with no money, with most of the situations that you’re going to run into, you won’t want to use your money. And then there’s a few situations that you’ll come across like buying REO’s that have gone down dramatically that are 30 cents or 40 cents on the dollar – those are going to start making sense.
 
Joe: I have a whole system on how I do that with rental properties that I sell to investors and am able to build a complete portfolio, get continuing income from those properties, and if I choose, sell those properties to other investors, make a profit on them, and go buy other properties and then get another chunk of equity.
 
Joe: If you have capital, you can do that, but you don’t want to do that, even if you have capital, if you don’t know how to do the zero down stuff first because the zero down stuff teaches you where all of the pitfalls are. Otherwise, you’ll end up like me where you build a 17 million dollar business and you lose it all because the way that process worked and you didn’t understand it properly. Anyway, I hope that helps. Good luck.