Rental Property Investor · Fort Lauderdale, FL · Member since 2017 · 21 posts · 7 votes
I have 23k in business credit that I want to use for a down payment on an investment property. I have some cash as well. I've been following this other popular investor on Youtube and this is the method he uses to acquire property. After a year, he'll do a cash out refinance to pay off the credit cards and start the cycle over again. That all sounds fine and dandy but from my experience with purchasing my first home, the bank wanted to a paper trail of where every single cent came from-- I did FHA 3.5%. Even if I do a conventional, wouldn't the bank want to know where the money came from? I feel like there's something being left out. I've tried to call my mortgage lender for information on how this works. Haven't received any call back yet. Could he be doing a low doc mortgage for each property? I'm trying to purchase my first multifamily property. Any advice would be appreciated.
Investor · Chicago, IL · Member since 2010 · 504 posts · 191 votes
9y
you could do that but there are stiff fees for cash advances but I guess if you do that and your credit score doesn't take a huge hit then fine but not the way I would do it. Why not just go to a bank or private lender rather than play with that very high interest money? You woul get signiture loans from banks for half the rate from that credit card. Plus if you have to do some repairs, then you have that credit line to fall back on. Just some thoughts.
Rental Property Investor · Fort Lauderdale, FL · Member since 2017 · 21 posts · 7 votes
9y
Thanks Arpan. I wouldn't do a cash advance. That would definitely be suicidal lol. I have a merchant account with a card reader that will deposit cash into my account the next day. It will be more of a purchase from my business to myself. My cards currently have a 0% interest rate for 9-12 months. Some even have cash back. I'm trying to leverage as much business credit as possible instead of using my own cash for turn-key rental properties. Then do a cash out refinance to pay the cards back. I'm trying to figure out if anybody has done this before and how the transaction was accepted by the loan originators.
Thanks Arpan. I wouldn't do a cash advance. That would definitely be suicidal lol. I have a merchant account with a card reader that will deposit cash into my account the next day. It will be more of a purchase from my business to myself. My cards currently have a 0% interest rate for 9-12 months. Some even have cash back. I'm trying to leverage as much business credit as possible instead of using my own cash for turn-key rental properties. Then do a cash out refinance to pay the cards back. I'm trying to figure out if anybody has done this before and how the transaction was accepted by the loan originators.
Good morning sir,
How did this turn out? How was your experience with this?
Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
7y
@Menalik Archer It's been done before. There are companies out there that specialize in obtaining business credit which people then use to buy and rehab properties. Then they refi out before the interest starts kicking in.
You need to look at your risk tolerance and what your numbers would look like if you got stuck with the credit card payments for an extended period of time beyond what you expect. If you had to deal with the credit card payments for an additional 6 or 9 months longer than expected, would you be able to afford to hold the property? What about a year or 18 months? What if it's vacant AND you have credit card payments? If you've got a large safety net, or this isn't your first REI project, you could be just fine.
Also, I would not discuss the business credit with any bank or lender because they scare easy. Get the cash in your bank account. Let it season for a month or two so that they don't see the large deposit on the statement and start asking questions. Proceed with financing after the money has been in the account long enough. And let us know how it works out!
Hey! Thanks for following up. Since this post I've flipped 4 properties and own 4 rental units. I've used my business credit cards to finance the purchases and rehabs. As @Nicole Heasley Beitenman started, you have to be very strategic and have an exit strategy in place before the interest kicks in. At the moment I have over 6 figures worth of credit limits. At the moment all of my cards are past the introductory period so I only use them for every day purchases and pay them in full every month. I don't use really personal cards for anything anymore. Hope this helps!
Hey! Thanks for following up. Since this post I've flipped 4 properties and own 4 rental units. I've used my business credit cards to finance the purchases and rehabs. As @Nicole Heasley Beitenman started, you have to be very strategic and have an exit strategy in place before the interest kicks in. At the moment I have over 6 figures worth of credit limits. At the moment all of my cards are past the introductory period so I only use them for every day purchases and pay them in full every month. I don't use really personal cards for anything anymore. Hope this helps!
Appreciate your answer sir.
I am doing the exact thing you did. I have 12 months no interest on my Amex to buy a duplex o triplex, I plan to adquire few properties on this way.
Right now, my tenants will help to pay the down payment for the year and I will take care of the mortgage, I just don't understand a 100% the cash out refinance and how to find the right property to do it. Any advice on this matter would be appreciated.
You have a line of credit through AmEx for $100,000 with 12 months 0 interest. You find a property for $30k that needs $20k of repairs. You use your AmEx to fund the purchase and repairs. After repairs are complete, you put a tenant in the property with a one-year lease. After the property is leased, you go to the bank and refinance it. The property is now worth $80k.
Most banks will only lend 75% of a property's appraised value, so they give you $60k. You use that $60k to pay off the AmEx.
As far as where to find these properties goes, that's not a cut-and-dry answer. Drive around and look for dilapidated properties. Look for "For Rent" or "For Sale By Owner" signs. Check Zillow and the MLS. Start hanging out with your local REIA.
You have a line of credit through AmEx for $100,000 with 12 months 0 interest. You find a property for $30k that needs $20k of repairs. You use your AmEx to fund the purchase and repairs. After repairs are complete, you put a tenant in the property with a one-year lease. After the property is leased, you go to the bank and refinance it. The property is now worth $80k.
Most banks will only lend 75% of a property's appraised value, so they give you $60k. You use that $60k to pay off the AmEx.
As far as where to find these properties goes, that's not a cut-and-dry answer. Drive around and look for dilapidated properties. Look for "For Rent" or "For Sale By Owner" signs. Check Zillow and the MLS. Start hanging out with your local REIA.
Well. Two issues with that strategy will be time and limit. I only have 12 months to pay the cc before the interest kicks in and my limit it's about 20k would be enough to cover down and closing expenses. The plan is rent myself one side and rent the other side to cover cc expenses.
I would love to refinance after I make the property look nice. I am still doing the research.
Houses in South Florida are a little more pricey but it's not impossible.
You have a line of credit through AmEx for $100,000 with 12 months 0 interest. You find a property for $30k that needs $20k of repairs. You use your AmEx to fund the purchase and repairs. After repairs are complete, you put a tenant in the property with a one-year lease. After the property is leased, you go to the bank and refinance it. The property is now worth $80k.
Most banks will only lend 75% of a property's appraised value, so they give you $60k. You use that $60k to pay off the AmEx.
As far as where to find these properties goes, that's not a cut-and-dry answer. Drive around and look for dilapidated properties. Look for "For Rent" or "For Sale By Owner" signs. Check Zillow and the MLS. Start hanging out with your local REIA.
But I think it's pretty straightforward answer miss and very helpful. Thank you for the feedback.
Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
2y
@Menalik Archer What happens if you can't cash out when you refinance? Perhaps the property doesn't appraise as well as you projected or there are unexpected operating expenses or cap ex that's incurred in year 1? What you are contemplating is very risky and I would advise not purchaisng real estate if you are reliant on a credit card. Using credit cards to advance renovation, particularly longer lead time purchsases is fine but as a general rule of thumb if you don't have the cash in your bank account or an already originated real estate loan with drawable funds to pay that card own, you shouldn't rely on credit cards in your real estate business. What do you think happened to those who used your strategy two years ago not expecting rates to increase exponentially to the point where banks wouldn't provide the cash out at time of refinance? You likely don't hear this story because those who were hurt using your contemplated strategy are smaller investors who aren't news worthy. However its the same fact pattern as the larger developers who relied on pref equity or mezz debt and are now at a point where the clock continues to tick on those funds because they can't recapture on a refinance. Same story, but a different funding source. I would say the credit card scenario could be even more damaging given the circumstances.
Hey! Thanks for following up. Since this post I've flipped 4 properties and own 4 rental units. I've used my business credit cards to finance the purchases and rehabs. As @Nicole Heasley Beitenman started, you have to be very strategic and have an exit strategy in place before the interest kicks in. At the moment I have over 6 figures worth of credit limits. At the moment all of my cards are past the introductory period so I only use them for every day purchases and pay them in full every month. I don't use really personal cards for anything anymore. Hope this helps!
Hi. I am thinking of using this method as well. What merchant did you use to liquidate the credit card? Also I'm thinking of using a DSCR loan and I'm not sure if I let the lender know where I am getting the funds? Or when I Should open the credit cards and if it'll affect me getting the mortgage in any way?