How to Buy Real Estate with Your Credit Card

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That’s right. I said it. Use your credit card.

I’m sure most of you have heard the explanation of bad debt versus good debt. Bad debt is when you finance purchases like flat screen TVs, cars, vacations, or…look out, I’m about to say it… your own home. Good debt is when you finance purchases that will give you a return. Education is a big one. Another big one? Real estate! (The right real estate, of course)

It’s simple. If the interest rate on a loan or debt service is lower than the return you are making on whatever you buy, you’re making a profit!

When and How to Use Your Credit Card

Using a credit card will obviously only get you so far in real estate because most likely you have a credit limit. Say $15,000. So you won’t be paying all cash for a $100,000 property anytime soon, but there is a lot in real estate you can do with $15,000. You can buy a $50,000 rental property using a mortgage with 20% down. $10,000 for the down payment and $5,000 should cover closing costs. Bam! You just bought a rental property with a credit card!

Is using a credit card a smart move in every case? No way. Let’s say you buy said rental property and said rental property is bringing in a 10% ROI. Your credit card is charging you 17% interest. That won’t work. I mean, it will work, but you’ll be losing money so don’t do it. But what if you are really well established with a credit card company and you can pull off paying only 7% interest and the property is bringing in 10%? That works! Well, maybe. Don’t’ forget the amount of interest you are paying on that mortgage too.

Eek! Things are getting confusing! Don’t worry, it’s easy. If you read my article on how to calculate rental property numbers on a napkin, you can do exactly that here. Follow the same process and add up the same numbers I list there, but then add in the extra debt service payment for the credit card. If you are still positive on the cash flow, it’s a good deal! If that extra debt service payment puts you only at breakeven or negative on the cash flow, it’s no longer a deal.

As far as how to use your credit card, the best way is to take a cash advance against the card. You will likely get a much lower interest rate and the cash becomes available in your bank account almost instantly. There are usually fees for doing this, but just add those into your calculations to be sure it doesn’t mess with your numbers, but the fees usually aren’t all that high so it shouldn’t affect them much if at all.

What if You Don’t Have a Credit Card?

That’s fine. You can do the same thing with other types of loans. Do you have a car that is paid off? You can secure a loan with your car, essentially get a full car loan based on the worth of your car, and use that money to put towards real estate. Lines of credit work. You can even use an unsecured loan if the interest rate isn’t too atrocious. My favorite loan source is my 401K. Some 401K/IRAs will let you self-direct so you can buy real estate directly with the funds, but if you don’t have that option you can borrow against your 401K/IRA. The advantage to doing this is the interest you pay on that loan goes back to your own account! So in this case you may not even want to add in your debt service to your calculations (unless you are worried about monthly cash flow specifically) because that money is just going back to you. It’s going to you in a form where you can’t touch it until retirement, but it’s still going back to you.

The Risk?

I’m nearly certain I’ll have people comment saying using a credit card is extremely dangerous and risky. My response? It’s completely dependent on your personal comfort level. I’m totally fine leveraging as much as I can, when I can, and from where I can and to the max limits that I can do it. How else would I buy real estate? I don’t have my own money to do it, so I have to use other people’s. I do fully understand why someone may not be comfortable using maximum amounts of leverage and credit cards, so I’m totally okay with that being your stance if that be the case.  Only do what makes you comfortable.

If you are comfortable using credit cards and other sources of financing however, my only warning is to make sure you are being smart about it. I talked about numbers and making sure that taking out the additional financing isn’t going to flush your profit down the toilet. Another thought is to make sure you understand all of the payback terms of the loan. Are there any penalties for anything? Is there any fine print you need to be aware of? Most importantly, I think the biggest protection you can have when you use leverage is to make sure to keep extra ‘emergency funds’ available. Don’t spend every penny you make off your investment. Save most of it, if not all of it, until you have a nice nest egg to cover any unforeseeables. Have an action plan set up to handle payments, emergencies, and worst-case scenarios.

Can anyone recommend any other clever ways of financing a little extra cash?

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About Author

Ali Boone(G+) recently left her corporate job as an Aeronautical Engineer to work full-time in Real Estate Investing. She began as an investor only two years ago but managed to buy 5 properties in just 18 months using only creative financing methods. Her focuses have been on rental properties and overseas investing in Nicaragua.

40 Comments

  1. Hey Ali,

    Great article. When my wife and I first started investing in late 2007, we used all of our credit cards to get that first house done. We sold it for about a $15,000 profit AFTER paying all of the credit cards off. The next house we used those same credit cards and sold my wife’s car to get the equity out. That deal was done and sold in 60 days netting us a $33,000 profit, AFTER paying off the credit cards and replacing the equity from the car. In the early days, it is a great way to start. Thanks for writing the article, it brought back some cool memories.

  2. I don’t understand why it’s so bad to finance a car or other items if you are getting a killer rate. I financed my car for 6 years at 2.9%. I could have paid cash, but I can get a lot, lot higher return than 2.9% through real estate investing. I don’t see how being a depreciating or appreciating asset makes a difference in the bottom line. The way I look at it, it’s like having a 2.9% 2nd loan used for my down payment only it’s secured against my car instead a house.

    • Ali Boone

      Actually Mark, I would have done the same thing you did. If you used the extra money to buy real estate, then it absolutely makes sense and especially at 2.9% interest! I need to find one of those myself.

      More what I was referring to was when someone finances a car to finance a vacation to finance a nice TV. But if you are financing any of those things so you can use the saved money to by an asset with a nice return, you’re good.

      • Great article by the way, I think I forgot to mention that!

        That comment wasn’t just directed at you, I hear a lot of guru’s stressing you can’t have “bad debt” on items that depreciate. It seems silly to me, who cares what is securing my debt as long as that debt is creating a better return than what it costs.

  3. Hi Ali,

    I really enjoyed the article, as I’m thinking of ways to raise my credit card limits in order to use them as creative financing if needed. One small thing I might add is the ability to use Paypal or Square as a means of getting the credit out of the card. You have to weight the 2.7% processing fee from Paypal and the 2.75% fee from Square, but the credit card readers are absolutely free, as well as the app you download on your phone. Having another tool in your toolbox is almost never a bad thing. Thanks for the great article, I love thinking of creative financing to make a deal work in your favor, or at all.

    Mason

  4. If you were trying to get a mortgage, the lender will look to see how you are coming up with the down payment. A down payment funded by debt doesn’t fly from my experience, with lenders.

    • Ali Boone

      That is true Dawn, and good point. Messing with credit cards can affect your credit for starters. Not drastically usually, but it will knock it some points. I haven’t tried it with the lenders but I’d imagine some would be leery. In that case, I’d make sure my funds were “seasoned” before going for the mortgage. Then they won’t ask where the money came from. The only thing that could hurt is if they see little left of your whole credit limit.

      • That’s exactly what I was thinking as well. I know this thread is from a year ago, but just popped up.

  5. Nice. I bought a piece of land years ago on a credit card by getting a cash advance, and then doing a balance transfer to a card with 0% interest for 18 mos. I paid it off before the 18 mos. expired and financed the purchase for nothing. I actually didn’t have to do this, but I was getting bombed by 0% balance transfer credit card applications at the time, so I figured I’d use their money just because I could.

    • Ali Boone

      Hey Steve, I’ve done the same thing! I have a loan out on a card right now with 0% interest for 12 months that I just plan to pay back once the 12 months is up. Capital One is great for those types of offers.

      • Great article Ali, thanks for inspiring all the great responses.

        You still must make the minimum monthly payments, or the full interest rate would be due on the entire amount retroactively, correct?

  6. Hi Ali, Great article bringing back many memories!
    Years ago, I literally bought my 1st nine or ten rental houses this way, I took a cash advance & paid cash for a wholesale deal, fixed it up with a credit card……paid those cards with another card…….then moved in a tenant…….then went to the bank for a refinance, usually with some cash out (probably tough to do today). Also, built some commercial garages behind a duplex I own with credit cards & later did a refi cash out as well. Recently, I’ve used credit cards to pay for everything like operations in my note business to buying individual, high yield, performing notes with low intro rates on the cards & when that expires I just sell the note. I agree that sometimes that “bad debt” seems GOOD to me.

  7. Another thing to consider is most credit cards offer cash back rewards. Capital one gives you 2% cash back on every purchase. I use that card for everything I can and pay it off every month. I pay 0 interest because I pay it off and get 2% back. Good deal to me! Doesn’t work as well on a cash advance because they usually charge a stiff fee upfront on those.

    • Yeah they do Mark. Well, it’s not horrible. I think it’s 3%? But you’re right, no rewards on cash advances. I do the 2 points per dollar spent route ;)

  8. Bravo! I’ve used Credit cards for 8 years as working capital to buy RE and to rehab. I currently have 31 personal cards (17 are in play now) and 15 business cards (8 are in play). It’s usually cheaper than bank money–if you’re careful–and a lot easier to get, in small amounts anyway. I’ve borrowed about $800,000 this way in the past 8 years, used for acquisition and even rehab. I currently owe about $76k on my personal cards and $62k on business cards. Together it’s been as high as $350,000 before cards started cutting my avail. balances a few years back, even though I’ve never missed a payment. And I’ve been using banks to refi more lately since restrictions have eased. I currently have $255k of personal available credit and $540k of business credit. Just checked my Transunion score, it’s 806.

    I’ve used low interest $$ from cards to buy or rehab dozens of properties. I’ve always only used the 0% or low % teaser rates and a few low % LIfe of Balance (“LOB”) rates (lowest is 1.99%) I’m still paying on, some from 8 years ago. I just took a $8550 loan at 0% til May 2014 from FNB Of Omaha. Note it’s under 50% of my available credit. More on that below.

    Tips I’ve learned,

    1. ALL CAPITAL ONE CARDS ARE PERSONAL CARDS. They all report to your personal credit. I took a tempting 0% advance on one at 90% of my available credit a few years ago and sunk my scores to low 600s. Therefore…

    2. Unless you don’t care about your scores–and you should, it’s the golden goose in many ways, and high scores get me lots of low % offers–don’t take over 50% of your available balance, including fees, on any personal card, ever. Some say keep it as low as 20%, but my 800+ scores suggest 50% max is OK.

    3. Business card offers are different. Unless you miss payments, they don’t report to your personal scores, so I routinely take 90% on business cards. It may affect my D & B scores, but I’ve never found them to matter, even when refi-ing a property at a bank in my business name.

    4. When applying, it’s OK to be optimistic about your income. Not wildly, but don’t we all expect to have high income from this biz, at least six figures this year? Income is something they can’t verify without your permission, and I’ve never had a card ask.

    5. If there are no good offers and you have idle cards, try to use each card once a year–a fast food meal will suffice–or they may cancel it on your for non-use.

    6. Don’t ever miss payments! If you can’t make the payments, you can’t afford the deal, it will sink you. On personal cards esp. I always pay at least 20% over the minimum payment, so they think you’re making good progress and using credit wisely. Set up all payments via online Bill Pay, a few days before they’re due, and set it and forget it. Be sure the name on the card is somewhere in your payment field to ensure the payment gets credited. Be sure the card company has your phone number, so they can call if your payment is late for some reason, and be ready to scramble to deal with any payment they don’t get for some reason.

    7. Be ready to “refi” your cc’s when the teaser rate expires. Sometimes I do it with the same card’s latest offer. At worst, until you get another good offer (or can pay it off out of cash flow), you’ll be paying hard money rates once your low rate expires. Attribute that interest to a specific property and it’s deductible, at least. My CPA is comfortable with that expense.

    There’s way more to know and learn. Creditboards.com is a good resource, though some of their posters seem a bit obsessive. Use credit wisely, and it will serve you well. Along with careful, reasoned investing and wise use of CC-borrowed funds, it’s helped make me a millionaire several times over..

    • Tom, I think this has to be officially the comment I have learned the most from of all my articles! Thank you! I’m actually going to utilize a lot of this information. I also didn’t know Capital One all goes to your personal name. My company card is through them, but now I’m thinking I need to go elsewhere for that? Do you recommend any other cc companies you like to go through?

      You seriously rocked my investing world with this comment! Thank you.

    • Thank you Tom, for the excellent information! It’s much appreciated. I plan to call a few credit card companies and find out more about their business accounts. Do you know if the clock starts ticking on the 0% interest period when the account is opened or when the cash advance is actually taken?

  9. Good article, Ali. Thanks for being brave enough to take a stand on this issue. I had NO money when I first started investing in RE, so I had no choice but to use credit cards. It worked. If I hadn’t done that, I wouldn’t have gotten my start. These early “credit card deals” built a track record that allowed me to use other financing options later on.

    • Thanks, Brian! I’m with you… there are better cheaper ways than credit cards, but if they are all you have, go for it! I may have lived off a credit card or two when I left my corporate job while I got on my feet with my own business. So while I wasn’t buying ‘assets’ with them, I was buying time to be able to make more than I ever did in the cube!

      • Thank you so much. I have been kicking this ideal in my head evr since I attended a webinar on building business credit…This seems to be a better route than using HML…Thank you so much for sharing this..not too many ppl will give away valuable info like this without getting something in return. A big thank you to the creator of this blog Ali…I feel like a million bucks already!!

  10. I actually did this back in 2010 to purchase and lightly renovate a forclosure (took out about $30k via a few credit cards and an unsecured loan). It sunk my credit score for awhile utilizing so much of my available credit but I paid everything off with two years and now own the property free clear! I would consider doing it again if I found an outstanding deal.

    • Ooh nice one, Janine. I’m the same way… I’m willing to take a small credit hit to do what I need to do. But now that I have Tom’s advice above I may never have to again! :)

  11. Hi Ali:

    I’ve absolutely used my credit cards to buy real estate. Anytime I get a card with a low interest rate “special”, I take the money – I’m no fool! Most of the time, we get those low rates for 18 months so we take the money, invest in some deal, and pay back in 17 months. Cheap, cheap, cheap.

    The only trick is paying attention to the date and paying back before the discount period runs out. That we do!

    Thank you, Citi, Chase, and Visa. :)

  12. I’ve contemplated doing this over the last couple of years but I’ve run into the following:

    If I use a CC for down payment, a mortgage bank does not want to loan the rest. Remember, they look at your cash accounts and ask, “where did this money come from?” I could say it came from my LLC account, but then they’re going to want to dig into that account.

    Anybody have any good work arounds for this? Do I just say “it was a gift” and move on? What creative options are there? I have a couple of rental properties and a good job. I can cover payments and have some personal lines of credit that I want to put to work.

    • Hi Trenton, good question. There is a workaround. I’ve done this numerous times, actually almost every time I’ve gotten a mortgage. This is legal but lenders would really frown upon you suggesting this I’m sure, but the reality is that when lenders check your bank statements and have to source all of your deposits, they only do that back to a certain time. Any money in your account prior to that time are considered “seasoned” funds, i.e. they consider them just to be there and do no worry about where they came from. Some look at 2 months bank statements, some look at only 1, some maybe 3…but whatever the time frame is, any deposits made before that time frame are not sourced.

      Catch my drift?

      • Thanks, Ali. I do catch your drift. I guess I have to play the guessing game on how far back they check. Usually, I don’t want to start the clock on investment by credit card until the investment is ready to go. Otherwise, I’m paying the cash advance fee (usually 3%) and then starting the clock on my no interest period.

        If I assume the lookback is 90 days (it’s been, at least, 60 for my two most recent refi’s) then i have 9 months to find, close (another 30 days, usually) rehab, and then rent/sell.

        In some cases, I wouldn’t mind carrying that high interest payment (still cheaper than HML if you consider the ‘free’ 9 months) and letting the property pay for itself until i can put it on another card. Even a refi is going to be difficult in less than a year, unless I had the property free and clear (ie, purchased on all cc).

        I’m just thinking out loud. I’m glad I found your blog!

        • Ali Boone

          I love thinking out loud, and better yet, when other people do it! I’m bound to learn something :) Thanks for the compliment!

          Remember, it’s not the end of the world if you have to pay a high interest one or two months. Just don’t do it every month and you’ll be fine. And it doesn’t have to be a guessing game, you can find out from your lender how far they look back ahead of time. I think 2 or 3 months was my standard until I found another lender who only checked one statement (nice!).

  13. Great article, Ali – it really made me think about this subject more. My dad has always taught me that carrying a credit card balance was about the worst thing you can do. However, he also taught me that if I had a car loan at say 5%, any money I had making less than that should be used to pay down that note.

    If I take both of his principles and bend them to my will, it sounds like he would approve of me using a 0% or even 9.9% (my current rate) credit card to finance some repairs as long as my ROI is greater than 10%. Thanks again for writing this as it really made me question my disdain for credit card balances.

  14. Jeremy Zindel on

    Ali – awesome post! I’ve been toying with the idea of using a credit card to finance all, or at least a portion of the down payment on my next property and I think this article may have just given me the courage to pull the trigger! One issue I’m running into though is the cash advance limit on my new business credit card being only 20% of the credit limit. Is this typical? Is it just dependent on the card issuer? Does business vs personal make a difference? I only have two cards, one business and one personal – business card is 20% and personal card is 45%, but they are from different issuers – Chase and Discover.

    Just trying to decide what to do when I apply for the next card so that I can maximize my available capital. Any insight would be greatly appreciated. Thanks!

    • Hi Jeremy, that’s a good question. I’m trying to think about my own cards and I’m pretty certain I’ve always been allowed to take out cash advances up to my full credit limit. Nearly certain about that actually. I have USAA and Capital One cards. I would ask around, because I don’t think I’ve ever heard of the percentage of a credit limit limit. Kind of the point of the credit limit, to say how much you can use of the card.

      Let me know what you find out!

  15. I know I’m late to the party but this was an interesting article and I enjoyed reading it. I see a lot of posting about seasoning funds in your bank accounts, but what do you do when the lenders ask about your credit utilization being so high and counting against any debt/income ratios they require to be a certain level for a loan? Or should I assume that no matter what the level of borrowing from your cards you are able to keep these ratios in check for approval by underwriting based on the economics of the deal in question?

    Thanks and I’m enjoying catching up on your posts!

    • Ali Boone

      Better late than never Mike! :) Kidding.

      I can’t say for sure how all that works. I lost my ability to get a mortgage (quit my corporate job) before all that came into play. The best thing to do would be to talk to lenders and find out what they look for that in department.

  16. High DTI will count against you. But lenders won’t see what’s on your business cards unless they pull D & B or other biz scores. I always keep all personal cards (this includes ALL Capital One cards, even their “Business Cards” report to personal credit, beware!) at usage under 50%. Worst case, if it’s a (cash out) refi, offer to use some of proceeds to pay down higher balance/higher % cards.

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