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

Leon Yang
3 min read
How To Leverage Credit Cards To Create A Cash Cushion In Real Estate

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

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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

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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?

Be sure to leave your comments below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.