CREDIT CARDS FOR MY CURRENT REHAB??

Question

Hi Bigger pockets family,

So.... I am considering getting two $40k limit credit cards and using them for my rehabs going forward.

Question is, some of these will have a 0% APR for the first few months and this will come in handy. However, the utilization will be on the high-side, probably over 50% of total limit. Is this going to affect my credit negatively? Will definitely be keeping my cycle between 3-6 months

Need advice. Would also like to know what Credit card companies you all would have me use

Thanks in advance.

Nathan Gesner · Answer

I don't advise you to use credit cards to fund investments. That's a disaster waiting to happen unless you have proven yourself financially disciplined for a long time. Even then, you're borrowing money in the hopes that you can flip the property and pay off the cards. What if you rack up $30,000 in renovation costs and then can't sell the home? What if it sells for less than you anticipated? You can easily be stuck with a massive debt at high interest rates. Bad, bad idea.

Even using a line of credit is risky but at least it has a reasonable limit on the interest rate.

Best option is to save up and invest from a position of strength.

Even using a line of credit is risky but at least it has a reasonable limit on the interest rate.

Best option is to save up and invest from a position of strength.

John Morgan · Answer

@Laurence Obi

I’ve bought five properties by doing something like this. I paid them off every time by the dead line and it’s worked for me. If I didn’t do creative borrowing like this I wouldn’t have been able to snag these good deals on a moments notice. Sometimes you have to take a few risks in life to make money. Good luck!

Frank Geiger · Answer

They have cards for 0% APR for 12 months. I have used this technique before and found it rather stressful. I would make sure to have several exit strategies. 50% utilization for a few months will have little effect on your credit over the long term.

Michael Ealy · Answer

Laurence, I agree with Ola that generally, using a credit card to get into real estate is a bad idea.

The reasons are:

1. The high interest rate

2. The short span of time you need to pay it back so you don't incur too much interest payments

3. The high cost of doing cash advances so you can't use it

However, if you do it right, using credit cards - specially BUSINESS CREDIT CARDS for the renovation or rehab part of a fix-n-flip, can be good.

I know a newbie investor who was able to get a $40,000 business line of credit - he used his cash as downpayment for a rehab loan and then used the business lines (as credit cards) for the rehab. After he finished rehabbing it and renting the property, he was able to refinance and pay off the credit cards before the 0% introductory period expires and replaced it with long term financing. He now is sitting on a house with $80,000 equity and the freed up $40,000 business line that he can use for another deal.

In a way, it's better than a hard money loan because the over-all cost of money during the intro period is LOWER.

So, done in a specific way, with a back up exit (refi) in case you can't sell, using BUSINESS CREDIT CARDS can be a good idea.

Laurence Obi · Answer

Someone speaking my language. Risks sometimes pay off. I'M considering it seriously but only when I'm cashflowing enough to cover some of the payments if I'm under water.

Odie Ayaga · Answer

You said going forward...do you have an LLC set up that's been open for awhile? I would start by considering business credit lines before personal. There are companies that can work with you to that end

Ola Dantis · Answer

@Laurence Obi

I'd say that this is definitely a bad idea.

You should go with a HML OR try to get a rental.

However, this is just my $0.02

Frank Geiger · Answer

You can't sell or REFI the property and need to come up with 40k or pay 20% interest. If it's your first one, I would assume the worst. The high interest can extend the life of the advance for a long time.

Account Closed · Answer

@Laurence Obi

Call up your local pizza joint and order whatever they can build you (xL) that tastes the worst and costs ~$100. Eat it. All of it. Then multiply that feeling by a million or so. That’s how bad this idea is. Even if this was your 10th deal, it’s that bad of an idea.

Laurence Obi · Answer

Thanks Michael. This makes loads of sense.

CREDIT CARDS FOR MY CURRENT REHAB??

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