How to Get Access to Upfront Cash - Easily!

27 Replies

Folks,

I am a private lender, mainly for residential flips, and it kills me to turn away the vast majority of my applicants because they don't have the upfront cash to qualify for my loans. I require them to have substantial skin in the game because I don't want to assume all the risk in THEIR project.

I require a 35% (that's 35% of the purchase price) down payment and I also require that the borrower have enough cash reserves to get them through the project.  I give 3 or 4 construction draws for 100% of the estimated rehab cost, but I give them in arrears of each stage of the construction, so the borrower must also have 25 - 33% of the cost of the rehab in reserves, as well as reserves to cover carrying costs. 

But there is an easy solution to the upfront cash problem if you have a good credit rating.  I know that your mama told you never to finance anything with credit cards, and to never use credit card cash advances because they kill you on the cash advance fee and the super high interest rate.  But I personally have 5 credit cards ($90K in available cash that I treat as a line of credit), all of which have NO CASH ADVANCE FEE!  The best one has a cash advance interest rate of only 8% and the worst 10%.  That's better than most private lenders offer (including me)!  My credit limits on these cards range from $10K to $25K.

4 of these 5 credit cards come from credit unions.  There must be many, many more of these no-cash-advance-fee credit cards available, because I found 5 or 6 and I haven't even looked that hard.  If you can find a list of credit unions online, you could go to the website of each and look up their credit card terms.

There is one no-cash-advance-fee credit card that I found that is not from a credit union.  It's called the Barclay Card Ring, interest rate for cash advances at 8%.  Apply here:  https://www.barclaycardus.com/apply/Landing.action...

There are different requirements for becoming a member of each credit union, but they usually leave you an easy way to qualify to join. So for instance, the Pentagon Federal Credit Union was set up for employees of the Pentagon, but if you join the "Voices for Troops" organization (it'll cost you $15 the first year and you don't have to renew after that) they'll let you join PFCU and get their awesome Pentagon Promise Visa card: www.penfed.org/Penfed-Promise/

You do have to be careful when planning out your cash flow, though.  Most of these cards require monthly payments of something like 2 or 2.5% of the outstanding balance.  

On that topic, you really should plan out your cash flow for every month of your flip project.  For example, let's say that you're doing a flip in which the rehab is planned to take 2-3 months, then it will take 2 months to sell it and another month to close, so that you're holding the property for 6 months.  You should have your cash flow all planned out month by month so that you make sure to have enough reserves.  And don't forget the carrying costs - insurance, loan payments, property taxes, water, sewer, electricity, etc.  Then make sure to add in a buffer as well because you will undoubtedly exceed your rehab budget, unless you've got years of experience.

Great post!  I'm posting a thank you since I can only vote for you once. 

Do you have any smart Ideas bout this issue: I have mainly duplexes and triplexes and am looking longingly at the cash flow on apartment buildings.  What is stopping me is the 30% down for a commercial loan.  I have equity and would be open to selling or refinancing. 

Great post, Matt! I just discovered this same credit card "secret" a couple years back. I'm a member of PenFed, too.

Here are a couple of others off the top of my head that I have, and their fees & interest rates:

USAA - 3% fee (a max of $200, though), 17% interest

Navy FCU - no fee, 10% interest

What others do you have or know of with the no-fee cash advances?

I forgot to mention that a few times a year I receive promo balance transfer/cash advance/convenience checks for my numerous credit cards. Many of these have minimal or no fee and/or low to 0% interest rates. Most people probably throw them away as soon as they get them, but I save all of mine in case I need them. Most have a promotional period expiration date.

@Don Coumbs:
Could you get a HELOC on some of those duplexes and triplexes that you have equity in, to finance new purchases?

@Mark Beekman

Thanks for the reference to Navy Federal Credit Union.  Another is the Digital Federal Credit Union (dcu.org).  Their Visa Platinum offers no cash advance fee and 8.5% interest rate on cash advances.  You qualify by joining the free software foundation (fsf.org).

@Matt Taylor  

  there are now guys posting on BP that they will get you these credit cards for a fee.

as for private lending I agree with your underwriting criteria. what I have always done with my guys is create very long term relationships with them so that I can ease the skin in the game for them and thus I get velocity and my money is out and stays out and my returns are substantially higher than most HML with a very nice safety margin... If your one off lending I would do the exact same thing you do .. It depends on how much you have at play and how much you understand your market or markets.

@Don Coumbs  

  on another thread you mentioned you had a pretty significant positive cash flow on your rentals would it not be easy to just save some of that for your down payments. YOu could also look at equity partners on these bigger deals.   As well as some of the crowdfunders may come in as equity if you have a strong track record which I assume you have.

@Matt Taylor  

  although I understand the idea of  100% leverage for your flipper.. and how that protects your interest in the property.. But if a deal goes south these folks could not only lose money but have a pretty tough time repaying and could ruin their credit.. As opposed to True equity I E cash on hand.. but I guess no risk no reward... I would think someone with a lot of experience and knows what they are doing could pull this off but for newbie first timers this would be very risky I would think.. as you know many flippers flop terribly would be sad to have them be sitting home one day in pretty good shape pick up on this idea go borrow 50k on credit cards to do your deal only to have it not work because of whatever went wrong. and find them selves 50k in the whole and their credit score at risk..

@Jay Hinrichs  

Thank you for the comment.  I would like your input and maybe it would be helpful to others in similar situations. 

I have cash flow and good credit, but I am about ready to run up against the 10 loan Freddy Mac maximum.  Incidentally, I had a really hard time finding a lender who would write to Freddy Mac and not stick with the Fannie May 4 loan limit, but Prime Lending has been really helpful.  Ron Thomas in Spokane, WA is my lender but I understand they have offices all over - here is a plug for them!

I can indeed save up for a 20 to 25% down on purchases of $100,000 or so.  I also have a couple of lines of credit and have used them for flips, and recently bought a court-house repo with line of credit and then refinanced it with Prime.  Three or four dozen banks and credit unions have told me no one does lines of credit on non-owner occupied and my current lines are expiring. 

100% self financing on $100,000 places plus fix up, or 30% on a commercial loan for an apartment building (I'm finding commercial loan minimums of $500,000 to $750,000) is a bigger hurdle.  Given time I could get there, but I am trying to work at this as a job and want to keep busy.  I could sell some of my rentals, but that would eat into cash flow and I would have all the tax implications or try to time a 1031 which means I'm either selling low or buying high.  I could concentrate on flips but I just can't stomach giving 24.5% to the government.

Lastly, I am trying to keep an eye on risk.  I'm leery of partners and don't want to get over extended.  I see from your other posts that you too are factoring in risk. 

Sorry, about the long post.  Any thoughts at all would be appreciated.

I've been thinking of using my credit cards for some time for a down payment or for repairs. My question is related to what Jay Hinrichs wrote (Sorry on phone, can't use @ feature). Wouldn't taking cash lower your credit score and/or increase your debt to income ratio, subsequently possibly limiting or eliminating possibility of refinancing? 

Also, do lenders actually allow you to do this? Won't they ask from where you acquired the funds? 

Answers are appreciated as I'm considering doing this....

@Matt Taylor,

This is a very good post and I want to say thank you. I'm still learning and trying to soak it all up and digest the information correctly. May I also say thanks to all of my fellow BP members and thank you, as well, for all of the great information.

I'm lovin' it!

Rodney G.

@Matt Taylor  great advice.  Thanks.  Just curious, as a private lender what rates/points do you offer?

Originally posted by @Matt Taylor:

Folks,

I am a private lender, mainly for residential flips, and it kills me to turn away the vast majority of my applicants because they don't have the upfront cash to qualify for my loans. I require them to have substantial skin in the game because I don't want to assume all the risk in THEIR project.

I require a 35% (that's 35% of the purchase price) down payment and I also require that the borrower have enough cash reserves to get them through the project.  I give 3 or 4 construction draws for 100% of the estimated rehab cost, but I give them in arrears of each stage of the construction, so the borrower must also have 25 - 33% of the cost of the rehab in reserves, as well as reserves to cover carrying costs. 

But there is an easy solution to the upfront cash problem if you have a good credit rating.  I know that your mama told you never to finance anything with credit cards, and to never use credit card cash advances because they kill you on the cash advance fee and the super high interest rate.  But I personally have 5 credit cards ($90K in available cash that I treat as a line of credit), all of which have NO CASH ADVANCE FEE!  The best one has a cash advance interest rate of only 8% and the worst 10%.  That's better than most private lenders offer (including me)!  My credit limits on these cards range from $10K to $25K.

4 of these 5 credit cards come from credit unions.  There must be many, many more of these no-cash-advance-fee credit cards available, because I found 5 or 6 and I haven't even looked that hard.  If you can find a list of credit unions online, you could go to the website of each and look up their credit card terms.

There is one no-cash-advance-fee credit card that I found that is not from a credit union.  It's called the Barclay Card Ring, interest rate for cash advances at 8%.  Apply here:  https://www.barclaycardus.com/apply/Landing.action...

There are different requirements for becoming a member of each credit union, but they usually leave you an easy way to qualify to join. So for instance, the Pentagon Federal Credit Union was set up for employees of the Pentagon, but if you join the "Voices for Troops" organization (it'll cost you $15 the first year and you don't have to renew after that) they'll let you join PFCU and get their awesome Pentagon Promise Visa card: www.penfed.org/Penfed-Promise/

You do have to be careful when planning out your cash flow, though.  Most of these cards require monthly payments of something like 2 or 2.5% of the outstanding balance.  

On that topic, you really should plan out your cash flow for every month of your flip project.  For example, let's say that you're doing a flip in which the rehab is planned to take 2-3 months, then it will take 2 months to sell it and another month to close, so that you're holding the property for 6 months.  You should have your cash flow all planned out month by month so that you make sure to have enough reserves.  And don't forget the carrying costs - insurance, loan payments, property taxes, water, sewer, electricity, etc.  Then make sure to add in a buffer as well because you will undoubtedly exceed your rehab budget, unless you've got years of experience.

HI There Matt,

As I was doing this cash advance strategy with credit cards I thought I was one of the few. Its good to see the strategy being implemented with respect to REI.

I also balance another integral part of credit score maintenance into the strategy since maxed out credit cards can lower your scores any where from 50-100+ pts. I have the cash out permanent loan after rehab or stabilization pay off the cards or down to 30% or less so the scores are maintained in case I need to keep my ability to obtain all sources of credit open allowing more liquidity.

I use navy fed and pen fed as well.

The best CC i know of is Boeing Employee's Credit Union or BECU, I think you have to live in one of their selected states however.

I will say BECU's rates are 6.9% variable (prime(3.25) + 3.65 margin for the best qualified candidates) and cash advance is $10 or 3% "whichever is less," but for 10 bucks its dirt cheap to carry up to 50k at prime + 365 basis points.

Another bank is awesome Western Federal Credit Union or Western.org. They offer two flavors that might be of interest for BP'ers:

- Signature line of credit at prime + 350 bps (6.75% currently), min monthly payment is 2.5% of balance up to 25k limit

- Visa Credit Card - 8.99% fixed for cash advance no cash advance fee up to 50k 

- max of 50k unsecured credit extended so 25k sig line and 25k CC is their max

If any one else knows of low rate no cash advance fee cards I would love to hear about it, good luck!

Originally posted by @Shadonna Logan:

@Matt Taylor great advice.  Thanks.  Just curious, as a private lender what rates/points do you offer?

 I only lend in NH, but to get an idea of how it works in general you can peruse my web site privatelendingnh.com.  The link called "progam information" gives rates, points and terms. Every lender is different, though.

@Albert Bui Thanks for the post.  Here's another: Digital Federal Credit Union Visa Platinum.

@Matt Taylor   - Thank you for the post and excellent info! Interesting about the "trick" for PenFed card - sounds too easy almost. I will definitely look into some of these options.

Random side thought - if you use cards regularly to finance your flipping, and you have a good high-rewards credit card, you could be getting a massive amount of points/miles for travel hacking :)

Thank you for this information.  I am wondering if there is anybody from Canada that is doing something similar who would like to join in.

Originally posted by @William Johnson:

Thank you for this information.  I am wondering if there is anybody from Canada that is doing something similar who would like to join in.

 William:

There are quite a few folks in Canada who lend money privately.  We do it, as primary or secondary mortgages.  I believe @Gary McGowan  knows of private/hard money folks in the TO area.  @David Vogt would be another person to query.

@Roy N. Thank you I am definitely interested in growing my contacts in these areas.  I specifically interested in good credit unions where I can get a credit card with an interest as low as Matt was talking about. 

Before one uses personal credit cards, remember that the monthly pmts on credit cards will be +/- 2% of the balance. Thus if you take 30k on cc, your pmt will be $600 plus interest. Thus if you are getting a regular loan, you will need to generate and show on your tax returns at least $1500/month in income to offset credit card payments (I used 40% DTI, $600/40%=$1500).

As an alternative I would recommend to use BUSINESS credit cards that do not show up on your personal credit report (do not use DISCOVER or Capital One, because even though they are ''called'' business credit cards, monthly payments will show up on your credit report) The interest rate varies from 9% to 17%.

Last time when I got a loan to buy a property under my own name, was 10 years ago. We only get business financing from local community banks. I know that the AMO is only 20 years and rates are 4.59-5% and they reset every 5 years, but it doesn't matter if you do use these loans for flips. Plus these business loans are never reported on your personal credit report and we get them originated and closed in 2 weeks.

@Matt Taylor  , great post. Few days back i asked question on BP about how to raise a small capital when no lender will finance. This is going to be useful option.

Here is the post. 

I like that idea.  I have an application in now with a local bank and waiting to see if and how much is approved.  If it works I'll give you a shout back.

Sounds like I'm in the minority, but for newer investors (those likely to need hard money), I think this is a horrible strategy...

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