Creative Financing or Dumb Idea?

22 Replies

So, I always get those "checks" in the mail from the Credit Card company for 0% financing for 12 months. I'm trying to find a way to use them to help lower my amount in a property akin to using OPM.

Basically, I will cash the check into our account for $10k (the check just says can't be higher than our credit limit on that card). There is a 2% fee and there is this written in the terms:
"Special Notice to customers who pay their entire balance in full each month:
If you always pay your balance in full each month, you do not pay interest on your purchases. This is called a grace period. Please note that if you take this offer, you will lose your grace period. If you transfer a balance to this account, you will begin paying interest on all new purchases, even if you pay your purchase balance in full each month. To avoid paying interest on your purchases, you must pay both your transferred balance and your purchase balance in full."
What does that mean? I will not be transferring, but using the checks, so does that apply?

The strategy is to use the $10k for closing costs on a property and pay it back with part of the rent money. For example, the first month balance will be $10k, we will pay $400 towards the card and leave us with balance of $9600, etc. At the last month, we will have a balance of $5200 and then we will either pay it in full at that time or use the amount from another credit card, for example Discover that keeps sending me $5k checks at 0% plus 2% fee. Then continue with the $400 until that is paid off.

I see the total OOP expenses as $200 fee + $100 fee +$200 (extra leftover from the $5.2k)= $500 OOP (plus repairs on that property). We have the closing costs in our account, but I was just trying to think creatively. 

Any thoughts?Have you tried this before? Does it work, is it worth it? What does the special notice mean (we pay our balance in full each month, usually about $40 for website fees and that's all on that card)?

Thanks!

What happens if you can't rent the property right away? What happens if you have unforeseen maintenance costs? 

@Therese V.   With the multiple credit cards, you're talking about floating the balance. It's an extremely slippery slope. Unless you have the cash elsewhere, you're just one gust of wind away from losing it all.

Originally posted by @Therese V.: If you transfer a balance to this account, you will begin paying interest on all new purchases, even if you pay your purchase balance in full each month. To avoid paying interest on your purchases, you must pay both your transferred balance and your purchase balance in full."

What does that mean? I will not be transferring, but using the checks, so does that apply?

Yes it applies, What they are saying is that while the check amount does not accrue interest, if you buy something else with the card you will be paying interest on what you bought from the day you bought it.  

Keep in mind that if you do not make the min payment or are late there are often harsh penalties and your zero interest rate may go away. Also there are often harsh penalties if you do not pay it off in a year.

@Therese V.  

The bank is going to ask for your last 2 months bank statements at a minimum and they're going to question where the $10K deposit came from.  Also depending on the timing of the credit card advance, it could greatly drop your score and disqualify you for a loan.

- Tom

The way to use those checks is to never place another purchase on the card that the check attached to, until the balance has been paid in full.  That statement is made assuming you do pay off the revolving cards in full every month of course; if you don't then you incur interest on new charges anyway.

Regarding this making your credit score drop: if your charges on the card exceed some percentage of the maximum credit limit, then your credit score takes a big hit.  What that percentage is exactly is not my expertise, but I have been told 50% to 60%  of the credit limit is the max balance you should charge.

Originally posted by @Ned Carey:
Originally posted by @Therese V.: If you transfer a balance to this account, you will begin paying interest on all new purchases, even if you pay your purchase balance in full each month. To avoid paying interest on your purchases, you must pay both your transferred balance and your purchase balance in full."

What does that mean? I will not be transferring, but using the checks, so does that apply?

Yes it applies, What they are saying is that while the check amount does not accrue interest, if you buy something else with the card you will be paying interest on what you bought from the day you bought it.  

Keep in mind that if you do not make the min payment or are late there are often harsh penalties and your zero interest rate may go away. Also there are often harsh penalties if you do not pay it off in a year.

 I have the cash readily available in my savings account if I need to pay it off quicker, and of course we have lots of reserves for maintenance etc.
As far as the min. payment, that is for the "check" or the new purchases? There is only 1 charge a month on that card at about $40 for my website. How do I find out what the minimum payment would be and whether it is just off the new purchases or the "check" as well.
Thanks for explaining that Ned. I currently schedule the card payments ahead of time, so that shouldn't be a problem.

Originally posted by @Tom S.:

@Therese V. 

The bank is going to ask for your last 2 months bank statements at a minimum and they're going to question where the $10K deposit came from.  Also depending on the timing of the credit card advance, it could greatly drop your score and disqualify you for a loan.

- Tom

 I've already got the loan, we're closing in a few weeks.

Originally posted by @Steve Babiak:

The way to use those checks is to never place another purchase on the card that the check attached to, until the balance has been paid in full.  That statement is made assuming you do pay off the revolving cards in full every month of course; if you don't then you incur interest on new charges anyway.

Regarding this making your credit score drop: if your charges on the card exceed some percentage of the maximum credit limit, then your credit score takes a big hit.  What that percentage is exactly is not my expertise, but I have been told 50% to 60%  of the credit limit is the max balance you should charge.

 Thank you for the explanation on the credit issue. It is a Capital One Business credit card. 

@Therese V.  

 - Keep in mind even if you're approved for the loan, the bank will typically pull your credit one last time before they close.

Tom

Thanks for that Tom. Didn't know that! 

@ Therese V. did the deal work out?  any updates?

@Therese V. did the deal work out?  any updates?

Updates:
We bought the house, have a tenant in it and have gotten 2 months of rent so far.
We didn't do the credit card thing because I figured I waited too long to figure it out.

We are looking at new rental property yet again, so thinking about doing it this time. What we'd do is right after we get an accepted offer we'd get the $10k from one card and have $5k waiting from another.
I calculated it as follows:
$10k has 12 months to pay off with no interest
$5k has 18 months to pay off with no interest
The first 12 months- we get about $1800 from the other 2 rentals, so that leaves us about $500/month that we are making. So we'd save up that $500/month and at month 10 we'd have $5k, we'd use $5k plus $5k from the other credit card (which gives us 18 months to pay with no interest).
Then, do the same to pay that one off.

Does this make sense? It would allow us $10k less OOP costs for buying each home, right? Since we aren't added any extra of our own money, although it's still getting paid back from other rents. But it seems like that means it's still the same money being paid, does that make sense? Still toying with the idea for a future deal.

Didn't follow that closely, but beware, going over a credit line with drafts then depositing funds, drawing from other advances can put you in violation of "kiting" laws working off of the float. Don't out smart yourself getting creative. Mess up and you can get hammered with fees and penalties, not a good long term financing move. From the activity a CC can be limited at any time, even closed to future advances, then where would you be? Good luck :)

Originally posted by @Steve Babiak :

The way to use those checks is to never place another purchase on the card that the check attached to, until the balance has been paid in full.  That statement is made assuming you do pay off the revolving cards in full every month of course; if you don't then you incur interest on new charges anyway.

Regarding this making your credit score drop: if your charges on the card exceed some percentage of the maximum credit limit, then your credit score takes a big hit.  What that percentage is exactly is not my expertise, but I have been told 50% to 60%  of the credit limit is the max balance you should charge.

I believe Steve is right but I think it's around 40 to 50% and it's called a credit utilization ratio, how you use your credit affects your Phico score, so never do 60 to hundred percent or you get penalized 

@Bill G.  I'm going to have to do some research on kiting to make sure that's not what I'm proposing. I guess I was just trying to think how I can creatively use that $10k no interest for 12 months.

@Brian Gibbons Are all cards' lines of credit factored in to that or just the one we'd get the $10k from?

@Therese V.   be sure to double check the fine print on those checks again.  I receive them monthly (although from a different credit issuer) with my credit card statements and they have always said that the check cannot be made out to myself or any other authorized user.  They treat that as a cash advance and it is not eligible for the promotion.  Your credit card issuer may allow it, but double check first if you decide to go that route.  

If using this strategy, move the $40 to draft off another account first. The payments you make to a credit card are typically applied to the lowest APR first. Meaning that until you pay off the 0%, no payments you send them will ever knock anything off the interest or principle on your $40 recurring charge.

@Carolyn McNeil , I know. These particular ones did not have that fine print. But it did mention the regular purchases would have the regular interest accrued.

@Jason C.   I have seen elsewhere to pay whatever normal charges off prior to the statement being "created" for the month to avoid that issue.

Just make sure you don't go over your limit, they may advance beyond your limit and that can cause a problem moving to another account, so that you have good funds.....don't forget accrued interest if there is any or fees assessed. Kiting is passing money to another account to cover overdrawn drafts where funds were not available using float to cover the time drafts clear. :)

A few years ago I bought two houses using a 0% introductory offer from a credit card company (they were big lines of credit but the numbers worked).

Once the 0% offer was over I called up the credit card company and got the interest rate locked in at 6.25%.  The houses had a positive cash flow from day one till I sold them for a little over twice as much as I bought them for.

I took the income from the two houses and bought my current residence (also bought under value with an owner occupant priority from HUD).

While I do not own the houses I still have the debt however I am not complaining about the payment or the interest rate considering the rate of return from the two houses and the current equity.

The only down side is what it will do to your credit (over balanced revolving loans does not look good on a credit report) and you will want to make sure you have plenty of access to cash to fix a roof, evict a tenant or replace the water heater.

@Bill G., there's a 2% fee for using the credit card check. We have enough cash to use, but I thought this can be a form of OPM.

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