How To Leverage Credit Cards To Create A Cash Cushion In Real Estate

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As a guy who prefers to buy properties seller financed, I have quite a few monthly payments that I have to make every month. As a result, there are a couple of things that I do that help me along the way.

First, most of my mortgage payments fall on the first, so that means many times I have until the 5th to make the payment to the loan servicer without a penalty.

Conflict Of Payment Due Vs. Rent Received

Related: How to Automate Your Rent Collections Using Dwolla

On the other hand, I have my tenants (most of them anyways) pay me on the 1st of every month. So therefore, I have a lag in which I can receive the rent first before making the payment on the loan.

This is actually quite a big difference as to if I pay the loan first, and then receive the rent payment. In the former, I get the cash first to make the payment.

In the latter, I have to dig an extra payment out of my pocket to pay for it and then receive the rent. Add this up to multiple properties, and all of a sudden that cash demand becomes huge.

Ideally, you would want to do the former as that will help you build a buffer of cash reserves that you can keep as an emergency. The difference in a few days, in this instance, can be huge.

Just be careful to make sure the loan servicer gets the payment at the day you intend them to receive it. If I have $10,000 of mortgage payments every month, this means I don’t have to pay out $10,000 and THEN WAIT for the tenants to pay me to fill that hole.

Second, I can use credit cards to build a buffer as well. Now before I get into it, I’d like to first warn everyone that this is a tactic that should only be used by those who pays off all their credit card balances every month.

If you do not pay off your balance every month, I recommend you not to use this at all. However, if you are the type of person who pays off your credit card every month, then this is a good idea to create some extra cash reserves for yourself.

How To Payment Your Mortgage With Your Credit Card

Related: How to Buy Real Estate with Your Credit Card

Interesting thing about credit card companies is that if you pay off your balance at the end of every month, they don’t charge you any interest costs. Furthermore, they typically let you spend the money for 30-45 days before they come to you for a payment.

Essentially, they are lending you money at a 0% interest rate for 30-45 days PROVIDED you pay back all the money at the end of every month.

Now again, if at any point you don’t pay off the balance in full, then you will be charged for the astronomical interest rates they typically charge you. So that’s what I mean by if you don’t pay off your credit card every month, don’t try this.

So what I have to do is to figure out how to pay my loan payments using my credit card. Most loan servicers or mortgage companies only accept checks.

Therefore, I must find a way around that. I am not sure whether I can write this without sounding like I am promoting certain services, but I’d just provide the general idea (if BP allows me to write the specifics, I can add that under comments, otherwise, it is not that difficult to find this yourself on the internet) that it is possible to use credit cards to purchase a certain gift card that has a PIN (which can be used like a debit card), and use that gift card to load money into another card, which acts like a bank account with free bill pay services, and I use that to pay to the loan servicer.

The cost of doing that is approximately 1% in transaction fees, but I get in return cash back/miles which I value at above 1%. But the most important thing is, I can use this method to “borrow” my payments for 30-45 days, and thus I can further build up my cash reserves. Again, do not use this if you can’t pay off your credit card on time.

With these two methods, I can build a float, or a free loan, which I prefer to use to further my cash reserve.

Cash is always king. It is nice to have more of it, even if it sits in my bank account. Knowing these two methods can help you build some extra cushion. Or on the other hand, if you had an emergency, you can use the above two to build you a one month cushion before getting it back together.

Have you ever used credit cards in a similar fashion?

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About Author

Leon Yang is an active real estate investor in Las Vegas. He is a buy and hold guy who also likes to flip from time to time. His main passion is to traveling to the less traveled places and inspiring others to become financially independent through real estate.

24 Comments

  1. Thanks Leon, For this reason I put alot of effort into moving all the bank mortgage payments to the 10th of the month. I use a rent collection system and they add 3 days to depositing the funds into my bank account so with paying the few mortgages on the 10th I don’t have this cash crunch at the first of the month.

    I use: http://erentpayment.com/ costs $3 each month.
    There’s rent payment systems that don’t even cost anything:
    https://www.dwolla.com
    http://www.williampaid.com/
    http://www.rentecdirect.com

    • I use rentecdirect for my whole rental management and I can vouch for it. Super easy to use and it’s cloud based.

  2. As one who in the past, purchased and renovated homes entirely on credit cards I don’t think I would do that again. After the bubble burst I was stuck with a $15k nut on my primary card. I had the funds to pay it off with cash but, wanted the REI to do so. Eventually seeing the card company taking one hell of a bite out of my monthly cash flow I paid the card off. I don’t think it would have been as simple if the balance was $50k. However running insane balances and then paying them off for cash was very good to my credit score, it rests at 823 as I write.

    I just bought a nation franchise business using 100% financing with a 48 hour approval with no collateral.

      • An existing Dairy Queen restaurant, we own another bought at a fire sale price just after the recession started. It was also financed in the same manner.

        • That’s so cool and matches my goals. Build up real estate profits and a great credit score and buy “real” businesses with it.

        • Next move is to sell all multi unit (all triplex) and buy a coin opt car wash. Keeping my single family houses and one 3 unit.

        • Hi Dennis,

          Just wondering how many hours a week do you spend for your Dairy Queen business? Do you think you could have a full time job and still own a restaurant type franchise?
          Do you mind telling us how much you paid and the financing terms?

          Appreciate any info.

        • They are listed by business brokers, however I found the first on Craigslist (no broker equals better deal) the second was from word of month. Once you are in a certain business others come to your first as a buyer, because one they know you have the funds, and two you are most likely not a tire kicker and understand the value of the deal.

          Much like REI, someone should come up with an REI franchise.

  3. Sharon Tzib on

    My mortgages are through a very large and well-known mortgage servicer, and they’ve allowed online payments for years now, and the due date before penalties start accruing is the 9th of the month, so I’m with Curt, I don’t really have this issue.

    Having said that, I’ve always used my credit card to pay for my day-to-day expenses like fuel, groceries, dining out, etc. and then I pay it off every month. This helps my credit score tremendously, as Dennis points out, and I get the miles :)

  4. Leon,

    Who is the gift card and card you load into? If you cannot provide that here, can you list it on your own website? Very interesting concept you have come up with!

  5. Leon! Great articles, and details!! :-) That would be really helpful, as searching the internet to find this information is a big task right now. Thanks, and great job.

  6. Hi Dennis, I am also interested in purchasing a franchise. Would you be willing to speak with me about the process? If you would, can you contact me?

    Thanks.

    • Not rocket science, the process was mostly transacted with the owner of the business. The franchise was simply transferred to a new llc for a fee. All training was done between the original owner and the new owner. Nice thing about buying a franchise is they do all national advertising and marketing research and development. Advertising materials and products come from the franchise company. All this for a percentage of the gross sales, in our case 8% of the gross.

      If you simply follow their lead you will be successful, no need to reinvent the wheel.
      Some folks just are not cut out for business, or they decide to run the franchise their own way and always fail. When they fail I like to be there to buy for peanuts. Kind of like landlording, nothing beats buying from a failed landlord, they will sign any paper, and agree to just about any terms to get out of a property. All of my properties were bought from failed landlords or as foreclosures from banks.

      If you want to come to Philadelphia and buy 3 triplex buildings I will give you a heck of a deal, it is time to move on to something more profitable for less management.

      • I am a middle school teacher, and I own a 4-plex (looking for another). I am interested in running a franchise, but from what I have seen, the franchiser expects the owner to be present each day/all day. I am looking for a franchise in which I can show up every day, but have a manager run it most of the time. Are there franchises that allow an owner to be somewhat absent? Does Dairy Queen not expect you to be present during hours of operation?

        • In our market DQ does not expect the owner to be present each day, and my wife who runs both stores has a manager in each. However as a practice she visits each store at least once a day. My son in law is the manager of a Chick Filet (in hopes of owning one) the owner of that store does not come in every day so not sure if this is an enforceable requirement.

          One other benefit of owning said DQ, every two years one can go to the national convention this year it was in Hawaii, nothing like a tax write off for traveling to Honolulu and Maui, and staying at the Ritz Carlton.

          Bigger Pockets needs to have a national convention.

  7. I’m with Glenn, Nick and Lisa that if you can post who exactly you use to pull this off I’d be interested in seeing.
    As you point out this is good for a ~30 day float and not a long term finance option.
    Though more appealing then a cash advance even if you are looking at doing some shorter term transactional deal, at least you get the 30 day float and no cash advance fees.

    Got an offer from my biggest limit CCard right now for 13 month 0% interest with a MAX fee of $199 so have to just take that money since even if I just put it in my “high yield” savings account for the full 13 months I will make more than it costs me.
    Someone remind me why I should not buy and fix real estate with Credit Cards? :)

  8. Shaun, I ended up in that trap, Didn’t know where else to turn was a newbe now I have a rental that is cash flowing and no one give me a loan do to my DTI. Any suggestions for debt reconstruction?

    • Yeah banks are annoying…

      No particular advice. If they don’t like you debt to income ratio you either have to increase your income or lower your debt.
      Beautifully simplistic if not actually easy to do…

      Not saying this is you Trevor, but it is worth pointing out to all that are reading this stuff that it is NOT a good idea to max out credit cards for your investments if you don’t have a good plan on how to pay them off quickly. And for sure don’t do it if you are going to be applying for any loans with a bank before you pay them off. Big mistake you hear sometimes is maxing out credit cards to buy and do work then try to refi and have that issue of an out of whack DTI.

  9. Leon Yang

    The method I use is to go on topcashback.com, and then go through giftcardmall.com, purchase Visa gift card (make sure it is the one that has a pin). Once it’s delivered, activate it and also set up a pin on it. With this debit gift card, you can use to load this on a Bluebird card from American Express, available at Walmart. You can load it $1000 a day and up to $5000 a month. Through Bluebird, you can use Bill Pay just like a checking account. With the rebate from topcashback.com, your transaction cost is about 1%, which depending on which credit card, you’ll earn enough to cover that cost.

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