chitown, MD · Member since 2012 · 38 posts · 1 vote
For most properties, lenders won't do a deal if a property needs work. Choices are HML or local banks. If you didn't want to deal with that, but have good credit and a 'charge-a-plate' (hee hee), have you ever purchased on that card and refinanced.
I'm thinking that you've got more leverage in a deal once you've secured the asset and should have no problem refinancing. Has anybody done this before?
Residential Real Estate Broker · Clinton, MD · Member since 2008 · 297 posts · 178 votes
14y
Hi Brian -- First -- I have never used a hard money lender. I have considered becoming a HML by arbitraging my credit card loans to offer a hard money loan. That said, I haven't done it yet.
I receive the zero interest offers from my credit card holders. It is usually zero interest for a year and the cost to use the cash varies depending on the card $75 flat fee to 4 percent of the amount borrowed.
The money is deposited directly into my bank and I promptly get a certified check and walk into closing.
Since this is an important part of my business, I pay close attention to my credit score and I have a routine of calling my creditors twice a year to see if I can get better terms or an increase. I have also moved some of my personal credit over to a business credit card (this resulted in my interest rate going from 9% to 6%).
Residential Real Estate Broker · Clinton, MD · Member since 2008 · 297 posts · 178 votes
14y
Yes. I've done it a few times. One of the properties I did a refi and was able to do one of those old time rehab and get more out then the cost of the entire deal. The other cc deals were purchases with minor rehabs which I promptly rented and used the rent to pay off the cc.
FYI -- I have an excellent relationship with my bank. I recommend you talk with your bank about what they are willing to do if you offer a "free and clear" property. Some banks will not finance, particularly if the property is owned by an LLC.
chitown, MD · Member since 2012 · 38 posts · 1 vote
14y
I'm obviously talking about really cheap properties, btw. The properties I'm looking at are under 60K.
If a bank profits for the 30 days needed to refinance, so be it. What I don't know is if ownership will enable the leverage with new lending since the percentage of ownership (down payment) is no longer a question since you're 100% owner just as you would be if bought with cash.
chitown, MD · Member since 2012 · 38 posts · 1 vote
14y
@T Ferrante -
Hadn't seen your last post until now, so my last post was not directed at you.
Good to know I'm not crazy in this way of thinking. I was thinking of just pulling cash and purchasing in the initial transaction and then refinancing with a bank under better terms. Any experience in how that might work?
Residential Real Estate Broker · Clinton, MD · Member since 2008 · 297 posts · 178 votes
14y
Depends on how you purchase. If you are purchasing in your name -- just make sure that you have less than four mortgages. It becomes much more difficult to refinance (even on a free and clear property) if you have more than 4 (and with some banks - 3).
Purchase as an LLC comes with its own host of issues, fewer banks willing to finance because this is now a secured business loan.
Don't want to sound too pessimistic because I've done this repeatedly. I'm also considering doing this to loan Hard Money to others. My purchases have all been under 70k and doing this has helped me grow my business and make cash offers to get some amazing deals. My latest closes Wednesday, 3BR/1 1/2BA -- $39k, rents $1850 per month. : )
Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
14y
T Ferrante,
Did you purchase the house with a CC or did you take a cash advance and use the cash? The difference in interest rate is substantial enough to affect short term expenses.
I paid cash of pocket to buy a house (12K) and then used my credit card plus a signature loan to rehab (total of 12K). I wish I would have just increased my credit card limit instead of doing both, but I needed cash as well for some items and the LOC cash was cheaper than the credit card cash advace (even though my CC has a lower rate for purchases than the LOC).
One thing to consider, if you use hard money, it is easier to finance than a cash out refi. If you buy with credit card, it would be a cash out refi and the requirements and seasoning are harder to meet than if refinancing a HML.
I have decided that the credit card is a very useful tool and if refinancing is not a problem, it can be cheaper than using a HML. My CC interest rate is 12% and I don't have to pay points and other junk required by a HML. But I need to work on getting the limit increased. Anyobody have advice on what kind of things the bank evaluates to increas CC limits (other than the standard credit score)?
Residential Real Estate Broker · Clinton, MD · Member since 2008 · 297 posts · 178 votes
14y
Hi Brian -- First -- I have never used a hard money lender. I have considered becoming a HML by arbitraging my credit card loans to offer a hard money loan. That said, I haven't done it yet.
I receive the zero interest offers from my credit card holders. It is usually zero interest for a year and the cost to use the cash varies depending on the card $75 flat fee to 4 percent of the amount borrowed.
The money is deposited directly into my bank and I promptly get a certified check and walk into closing.
Since this is an important part of my business, I pay close attention to my credit score and I have a routine of calling my creditors twice a year to see if I can get better terms or an increase. I have also moved some of my personal credit over to a business credit card (this resulted in my interest rate going from 9% to 6%).
chitown, MD · Member since 2012 · 38 posts · 1 vote
14y
@T Ferrante and
@Brian Hoyt
You guys are good! Thanks for the info and new angles to focus on.
BTW, I would be using a charge card as opposed to credit card, so only the first billing period (probably 28 days) would be interest-free. With a cash-out, the nominal interest to close would end up being a 1/2 month-30 days if a bank takes 45-60 days in a worst case scenario.
Financial Advisor · Tampa Area, FL · Member since 2008 · 956 posts · 214 votes
14y
keep in mind that many banks will do cash-out refis for about 75% ltv.
another option if you really start really doing a lot of these is to get a merchant account (or partner with someone that has one). say you end up paying 3% merchant fees to do a purchase and getting 10% on your APR(purchase apr), you are far better doing that than paying 4% cash advance fee and then a 20% apr (cash apr).
years ago, i wanted to buy a car on my cc since i had a great promo. a buddy of mine had a business and we ran the card through his merchant, i bought him lunch and he wrote me a check. :)
Real Estate Investor · Chattanooga, TN · Member since 2009 · 191 posts · 47 votes
14y
Hi Brian,
Ask for your credit limit increase after you pay down some on your card. The companies give more credit when it looks like you don't need it or have the ability to pay off in big chunks. Good luck. mck
Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
14y
Another question for the CC gurus here,
Do your banks ask "why?" you want the increase? What do you tell them?
Whenever I ask for a credit limit increase, my credit union always asks why I am requesting an increase. My reasons have varied from paying for tuition to replacing HVAC, to getting my house painted. I did not indicated that the latter two were for an investment property as I thought this might bring more scrutiny over approving my credit increase. Its funny, though, about 6 years ago it had a 500 limit and that is where it had been for abouut 5 years. One day I discovered it was 1500 without any request. I've requested 2 or 3increases since than to get it up to 9000 and they have asked why each time.
Residential Real Estate Broker · Clinton, MD · Member since 2008 · 297 posts · 178 votes
14y
Hi Brian -- What do I tell my creditors about why I want an increase? Short answer, the truth. Longer answer -- It depends on the creditor. Since I call semi-annually, I generally say that I am reviewing my credit and wondering they can do for me. That leaves them wide open to suggest credit increases, interest rate decrease, opening a business line, etc. Of course, if the bank is not creative enough to suggest any of the above, I follow up by suggesting it for them. Worst case scenario is that they can do nothing. However, usually, I get some sort of improvement.
Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
14y
Josh Green, the merchant account is a great idea. There is a sevice called Square-Up, where you can open your own merchant account and accept cards with a smart phone. I wonder if there is a way to set it up so you can use it to get cash at the purchase rate APR? Hmmm... time for some research.
Investor · Fort Worth, TX · Member since 2011 · 1k+ posts · 450 votes
14y
Well, I don't have time to do a thorough reading right now, but here is the rules:
https://squareup.com/legal/ua
From a curory review, it looks like the closest thing to what I would want to do which is prohibited would be accepting purchases for a buyers club. But, since I would not be pooling monies with other people to get bulk dicounts, I don't think that is a problem. I will read up a little closer later.
How would you categorize the "purhcase"? I.E., what product would the entity holding the merchant account be offering?