Purchasing using credit cards

39 Replies

I've herd about a technique for getting together funds by opening several credit cards and getting line increases until you have enough to purchase a property, then refinancing out. Sound like a good idea or bad. Has anyone tried this and what would be the fasted way to get the lines increased. thanks in advance

@Marquise Crampton - You can theoretically purchase a house this way, but I would recommend that you have a 100% solid strategy for re-financing the property. You don't want to get stuck with 18% APR on multiple lines of credit. Some CCs offer 0% balance transfers for 12 months, which may be a better option as it will give you 12 months at 0% interest.

I have called and requested higher limits on cards before, but only after having a solid history with the bank.

It works, but like any other strategy you need to know how to do it before you try it.  Getting the cards is simple enough.  Knowing how to use them to invest is another matter.

One of the keys is you need a period of time with 0% interest...like 6-12 months.  This makes the cars almost free money.  There are specific steps to take, and usage of the Cash Advance, balance transfers, and new purchases that make this work.  We teach it in our group, and put it into practice.

It isn't as simple as "I have C.C.'s, now what do I do" though, but it does work extremely well.

Hi @Marquise Crampton

This is a topic that shows up on the forums quite a bit. If you just search credit cards, you will find a number of opinions on the matter.

As a rule of thumb, I would say it is a bad idea. Especially for amateurs. Why wouldn't you just do hard money instead? Yes, you might be able to get zero interest for X number of months with the credit card, but what happens when your rehab takes longer? As soon as that introductory period is over, the interest rate on that credit card sky rockets to anywhere from 15-25%. Then you have ruined your credit score and you will have collections agencies harassing you. 

At least with hard money, you can try to work with the lender. Show them why the job is taking longer, and they will probably work with you. Remember, they want your deal to be a success, so you come back and lend from them for another deal. The credit card company wants you to fail so you become their indenture servant.

For the average investor, this is definitely something I'd avoid. 

Just my two cents, good luck!

Clinton

Originally posted by @Clinton Holmes :

Hi @Marquise Crampton

This is a topic that shows up on the forums quite a bit. If you just search credit cards, you will find a number of opinions on the matter.

As a rule of thumb, I would say it is a bad idea. Especially for amateurs. Why wouldn't you just do hard money instead? Yes, you might be able to get zero interest for X number of months with the credit card, but what happens when your rehab takes longer? As soon as that introductory period is over, the interest rate on that credit card sky rockets to anywhere from 15-25%. Then you have ruined your credit score and you will have collections agencies harassing you. 

At least with hard money, you can try to work with the lender. Show them why the job is taking longer, and they will probably work with you. Remember, they want your deal to be a success, so you come back and lend from them for another deal. The credit card company wants you to fail so you become their indenture servant.

For the average investor, this is definitely something I'd avoid. 

Just my two cents, good luck!

Clinton

 You're right about this not being something to try without understanding the risk...and having controls in place.  Hard money is just a different option with its own issues and problems.  We use both methods depending on the timeline of the project, and how much cash is needed.

What I have found though, is if you understand how to "exit" the credit card method, and have that "exit" in place, the C.C. method is better by far.

People with high CC limits and offers for 0% balance transfers for 12-18 months already have credit scores high enough. They are more than average responsible CC users. But they should have some experience and solid vision for their RE business model to be able to use virtually free money for 12-18 month (really 3-4% transfer fee).
Originally posted by @Jane A. :
People with high CC limits and offers for 0% balance transfers for 12-18 months already have credit scores high enough. They are more than average responsible CC users. But they should have some experience and solid vision for their RE business model to be able to use virtually free money for 12-18 month (really 3-4% transfer fee).

 Correct.  Gotta have a plan...and it's the transfer fees that keep this from becoming free money while the 0% period is in place.  This is a great "cash like substance" to use when applying the refinancing method I use.  This way, you have an "exit strategy" in place for the credit cards, so you shouldn't get stuck with any balances when the 0% period comes to an end.

We are cash buyers.  This is one of the ways open to become a cash buyer, as long as that exit strategy (ours is the refi) is in place before you start down this path.

Originally posted by @Christian Bors :
Be careful using this strategy. A lot can go wrong very quickly. I personally would try to find a different way to finance a property

 Be VERY careful...however, if you have the "exit" strategy in place for the cards, this is an easy...and very safe strategy to use

I agree with the comments above.  the CC strategy is great, as long as you have a definite exit strategy and you're not a newbie in the business.  I would do this all day long, but looking back, i mayve gotten crushed on my first few deals - due to underestimating budgets and timelines...

Originally posted by @Joe Villeneuve :
Originally posted by @Clinton Holmes:

Hi @Marquise Crampton

This is a topic that shows up on the forums quite a bit. If you just search credit cards, you will find a number of opinions on the matter.

As a rule of thumb, I would say it is a bad idea. Especially for amateurs. Why wouldn't you just do hard money instead? Yes, you might be able to get zero interest for X number of months with the credit card, but what happens when your rehab takes longer? As soon as that introductory period is over, the interest rate on that credit card sky rockets to anywhere from 15-25%. Then you have ruined your credit score and you will have collections agencies harassing you. 

At least with hard money, you can try to work with the lender. Show them why the job is taking longer, and they will probably work with you. Remember, they want your deal to be a success, so you come back and lend from them for another deal. The credit card company wants you to fail so you become their indenture servant.

For the average investor, this is definitely something I'd avoid. 

Just my two cents, good luck!

Clinton

 You're right about this not being something to try without understanding the risk...and having controls in place.  Hard money is just a different option with its own issues and problems.  We use both methods depending on the timeline of the project, and how much cash is needed.

What I have found though, is if you understand how to "exit" the credit card method, and have that "exit" in place, the C.C. method is better by far.

Hey Joe! 

I agree with you regarding C.C. method being better, IF you know what you are doing and have that exit in place. It becomes a numbers game, 12-18 month loan at 0% plus a few pts in transfers is far better than 12-18 month hard money loan at 13-15% with 2-5 pts up front. 

I just get hesitant about a total amateur stumbling across a post like this. If you are a total amateur, understand that both C.C. and hard money can have serious, life changing consequences if not done properly. 

The only time I would use this strategy is if I were buying a house well below market value  and I was 100% sure of a quick exit strategy.  Credit card money is really expensive money so you dont want to hold on to it for very long or it will eat up your profits. 

The basics of the process is pretty straight forward:  

  1. Get pre-qualified as a borrower for refinancing to see how much you qualify for and what the terms will be. (This must happen first)
  2. Find the property, analyze it for a short rehab period...as in "no roof, structural, etc...)
  3. At the same time apply for the C.C's.
  4. Use the cards to buy/rehab the property
  5. Payoff the property cost (buy/rehab) with the refinancing.
  6. Call the c.c. companies and see if you can get the limit raised AND (this is more important), an extension on the 0% interest period.
  7. Continue the process until you can't get the 0% interest period extended.

Home Depot and Menards also may have 0% interest for 6 or 12 months (with minimum payments).  So instead of purchasing materials with cash, you can put them on credit and with small monthly payments, you can push off paying until your rehab sells (as long as it sells within the timeframe allotted).

I took out 4 credit cards 0% interest for 18 months to complete a recent rehab. I do however have the money in the bank to cover the balance I just wanted to use other money basically interest free. 

What I didn't realize however that getting 4 credit cards and maxing them out lowers your credit score pretty dramatically so that is something to consider if you plan in borrowing more down the road. 

Originally posted by @Marquise Crampton :

I've herd about a technique for getting together funds by opening several credit cards and getting line increases until you have enough to purchase a property, then refinancing out. Sound like a good idea or bad. Has anyone tried this and what would be the fasted way to get the lines increased. thanks in advance

Yep and you can't use that for a DP they won't let you use borrowed money for that.  Not with any government regulated loan.  They want part of you in the deal.  With a hard money loan ok.  The one exception is an equity line of credit or gift funds.  

Originally posted by @George Allen :
Originally posted by @Marquise Crampton:

I've herd about a technique for getting together funds by opening several credit cards and getting line increases until you have enough to purchase a property, then refinancing out. Sound like a good idea or bad. Has anyone tried this and what would be the fasted way to get the lines increased. thanks in advance

Yep and you can't use that for a DP they won't let you use borrowed money for that.  Not with any government regulated loan.  They want part of you in the deal.  With a hard money loan ok.  The one exception is an equity line of credit or gift funds.  

 Not totally true.  You can use the Cash Advance...after you transfer from the CA into your account as new cash.

Originally posted by @Karen Bickford :

I took out 4 credit cards 0% interest for 18 months to complete a recent rehab. I do however have the money in the bank to cover the balance I just wanted to use other money basically interest free. 

What I didn't realize however that getting 4 credit cards and maxing them out lowers your credit score pretty dramatically so that is something to consider if you plan in borrowing more down the road. 

 That's why you don't max them out...and you shouldn't have to.

Originally posted by @Joe Villeneuve :
Originally posted by @George Allen:
Originally posted by @Marquise Crampton:

I've herd about a technique for getting together funds by opening several credit cards and getting line increases until you have enough to purchase a property, then refinancing out. Sound like a good idea or bad. Has anyone tried this and what would be the fasted way to get the lines increased. thanks in advance

Yep and you can't use that for a DP they won't let you use borrowed money for that.  Not with any government regulated loan.  They want part of you in the deal.  With a hard money loan ok.  The one exception is an equity line of credit or gift funds.  

 Not totally true.  You can use the Cash Advance...after you transfer from the CA into your account as new cash.

http://www.creditcards.com/credit-card-news/credit...

It's difficult to get an accurate reading on how many borrowers use credit card advances to fund a down payment. Since they're against the rules, most borrowers aren't going to fess up if that's the route they've taken. 

You can try it.  Its against federal guidelines however

@Marquise Crampton

I think its a bad idea on many levels.. I can see it for rehab... I would suspect you run up a bunch of credit cards and your once great fico goes down pretty heavy.

Most people strive to get out of credit card debt. I know I did and once I got out of it ( young and kind of dumb) by the time I was about 30.. never again will I use them for anything except for paying for stuff to get Airline miles and hotel points then pay them off monthly ..

The risk of running up a bunch of very expensive debt is real.