How to Use Credit Cards to Fund Real Estate Business

17 Replies

Hello Everyone,

I recently formed a real estate LLC as a 50/50 partnership. We are looking to have credit cards as an option to:

1) Fund an entire Flip

2) Pay for materials for a Flip

Questions:

1) Should we apply for cards through our LLC or personally? I see lots of people talking about using 0% APR cards. We applied for an American Express Card through our LLC and get $2,000 of line of credit. Not much we can do with that.

2) What specific cards do you recommend and please designate whether the are personal credit cards or business credit cards (applied for as a business).

I appreciate everyone's help!

-Jesse

Really would not recommend this strategy, as so much can go wrong, credit cards would only be 0% for a limited period of time and it is unlikely you could fund an entire rehab on a single card.  Also many contractors charge 3-5% more for you to use a credit card because that is what the credit card company charges them to accept it.

Ive heard of someone doing this successfully from a podcast. Apparently it can be done, I'm just too chicken.

I used to help people get 0% for 15 months credit cards from Key Bank or Citi to float tax credits in a previous job and it worked great, but typically people couldn't get approved for more than $5-10k unless they had an income above $100k or so. I could be wrong, but as a primary source of funding it doesn't sound feasible.

Also note that even if they charge zero interest for a time, most cards will still require you to pay down the principle balance at a pace of 1.25% per month (so if you have $10,000 outstanding, you have to make a monthly payment of $125).

If you get the cards in your personal names, you have to make sure that you charge each card equally. In an 50/50 LLC each partner needs to put exactly the same amount of money in to the LLC.

I would definitely be cautious with this approach. It can be done as long as you have the reserves to pay at least the CC monthly minimum. Otherwise it can spin out of control quickly. What if your rehab takes longer or it sits for an extra month or two when you list it? 

I don't recommend opening up a CC in your names to fund business expenses. What's the purpose of using an LLC if you are't going to treat it as a separate entity?

There are cards available to businesses that are opened in the LLC name however, you personally guarantee the line of credit.

I'm being offered a personal CC with a $100k-$200k. I've been told it's possible to convert the credit to cash with no fees. Zero interest for 18 months. The company/middle men take 8% off the top of whatever amount of credit I get. I haven't accepted the offer yet, but I probably will. I won't use the CC for anything but the purchase of the home, and repairs. Actually, I will also have money saved to pay each months minimum payment. It's the cost of money.

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How much is the down payment for these deals? IF it's a brand new credit card I don't think you'll get approval for more than 10K. 

If it's  a flip and you think you'll be out of it before the interest free period is up then do it. I did it and had months to spare. 

IF you have had the card for a while, ask if they can increase your credit limit than do a balance transfer. You will pay a transaction fee 3-5%. but have 12months interest free. But you need to be discipline with this method.

Hello Everyone,

Thank you for all of your responses.

My business partner and I both have personal incomes above $100K and the first credit card we applied for we got a $2K limit.

I learned from American Express the other day that they have "Charge Cards" that have almost no limit but must be paid back in 60 days. 

Either way, using credit/charge cards under our LLC at this time does not seem feasible. That's fine. I'm just trying to explore all of my possible financing options.

As of now, I'm trying to get a few family members involved as private lenders (slow to develop) and have a few hard money lenders where I'm looking at minimum 2 points and 10-12% APR and only funding 70-80% of the deal.

Our plan is to use some of these modes of financing and then build up cash from our flips so we can fund ourselves.

Thanks again for everyone's input!

-Jesse

For most this is a bad idea but I started my last business like that. There used to be a strategy, I believe a poster on the now defunct website Fat-wallet who went by the name Suckisstaples coined the phrase App-O-Rama for it.

Basically you would do your homework and get a list of companies you would apply for and apply for them all in one sitting. By doing this the credit card companies didn’t see all the hard inquiries and you could get a substantial amount of money.

It’s still possible but now they all charge a 3-5% balance transfer fee. Honestly back then the hard part was getting the money off the cards. Some like BOA would deposit the money in cash into your account. Most wouldn’t but I use to balance transfer to Amex and then call them up and say I did the wrong card and have them mail me a check.

Also as it asked for your income and any additional household income, I would put mine and my wife’s without adding her name to it. Then I would do the same for her and just reverse it. I think at one point I had up to $250,000 in zero percent interest money. (Prepare for your credit score to tank for a while).

However one day with that much owed I figured if something went wrong I’d be in trouble so I paid it back. But I’ve done this off and on over the years many times.

One final thing. Yes it’s better to get it in your business name as it is still personally guaranteed but it doesn’t show up when they run your personal credit report.

But if you are not 100% responsible with your spending or you seem to forget that it’s not your money you will do a lot of damage.

@Jesse Ritter This is a very bad idea popularized by many real estate gurus. Run, don't walk away from whoever is giving you this horrible advice. 

Regardless of what entity the credit card is issued to, it is guaranteed by the owners/partners of the LLC i.e. if this venture fails, your personal credit score will be affected.

Lenders are not stupid that they will give away credit to every Joe Blow who walks off the street. There are provisions built into your credit card agreement outlining what I've mentioned above. 

Plus, there is no free lunch - ever. 

@Marcus Payne - It's likely that it was my podcast you listened to that discussed this as a strategy.  I'll repeat here what I said there - this is not a beginner strategy and it requires a LOT of discipline, organization and the ability to make AT LEAST the minimum payments until you refi.  

I'm a CPA, so the discipline and organization are second nature to me.  If struggling to remember to make payments on time is hard for you, then don't do this.

First of all, you're unlikely to be able to get credit cards in the LLCs name since it is so new.  At the very least, you and your partner will have to personally guarantee the credit.

Second, there is an issue with co-mingling funds, but you can get around it. Essentially you personally take the cash advance on your personal credit card. You then execute a promissory note to the LLC with the same terms as the payments on the credit card. The LLC then writes a check to you to pay your note and you turn around and write the check to the credit card company. I don't know if this will make it through a court case (ask an attorney), but it would likely pass the sniff test with the IRS.

Third, here's how I did it - other people's experiences may vary.

1.  I got credit cards with Home Depot and Lowe's that offer 6, 12 or 18 months of 0% interest, depending on how much you charge.  My personal credit allowed me to qualify for pretty high balances.  Something like $7500 with Lowes and $12000 with Home Depot.

2.  I had something on the order of 6 or 8 other bank cards that were all offering me cash advances of my full credit limit - anywhere between $5000 and $15000, depending on the card for periods of anywhere between 12 and 24 months.

My rehab took 6 months (roughly).  

During the rehab, I charged up Home Depot and Lowe's to the extent possible.

I then wrote myself cash advance checks from the credit cards and deposited those into my bank account.  From there, I paid contractors and other expenses as necessary.  This was a part of my credit card agreement.  If I had actually used the credit cards to charge anything (thus getting points or miles or cash back or whatever), then those charges were subject to the regular interest rate.  Therefore, I had to forego points, miles and cash back in favor of 0% interest.  Some credit cards will allow you to charge at 0% though, so know your terms and conditions.

Yes, there is a cash transfer fee of between 1% and 5% on the credit cards.  Cheap money, in my opinion.  However, this means that just because your credit limit is $5000, that doesn't mean you can pull $5000 cash advance on the credit card.  You have to bear in mind that the 3% fee will be added to your balance and if that puts you over your credit limit it can (and usually does) negate the 0% offer and your entire cash advance is now subject to the regular interest rate.

If you are late on a payment, they can subject the rest of the balance to the regular interest rate.  This is usually outlined in the terms and conditions of the card.

My credit cards had between 1% and 2.5% of monthly balance as minimum payment.  So when I needed to pull funds, I also pulled enough to make the minimum payments.... all still at 3%.  

So let's say I needed $1000.00 and I knew I would need 2% payments for 6 months.  I'd pull $1,150, use the $1000 and then keep the $150 to make the payments.  Credit card would charge me 3%, so my balance would be $1185.00 and the payments would be made from there.

The rehab finished at about the 6 month mark which, coincidentally enough, is when I had some of my 6 month payback periods coming due.  If you don't payback the entire balance by the time the promotional period is over, the balance bounces up to the regular interest rate.  Ouch!  

So I refi'd and paid off everything that was coming due at the 6 month mark.  This left me with a ton of cash left over.

I kept that cash.  Why?

Well, at the six month mark, I also moved tenants in.  The cash flow on this particular rental was enough that the rents would pay the mortgage and the payments on all of the credit that was extending out past 6 months.  Basically, I took the remaining balances, divided them up by the remaining time left on the promotional offers and set up regular monthly even payments.  I had money left over for repairs and maintenance too.

So essentially, I didn't take any money out of this rental for 24 months, but the tenants finished paying off the rehab.

I took the leftover money from the refi and bought a turnkey place, put tenants in on day 1 and that cash flowed as well.

Once the first rental had all the credit cards paid off, my credit cards were all freed up and my credit score had bounced to the moon.  All of the credit card companies wanted to increase my credit limit.  I happily allowed them to do so.

The keys to my success in this were:

1.  Excellent Credit to start with.

2.  Discipline, Discipline, Discipline

3.  Financial comfort - if my rehab had gone longer than 6 months or ran as much as 35% over budget, I still had enough other cash flow from other sources that I could have funded payments and maintained the plan.  Don't do this if a slip in time or budget is going to have the whole thing come crashing down around you.  This is not for those pushing the limits of their available cash or credit.

4.  Ability to plan.  I can build a spreadsheet to plan out cash flows and forecasts and financial models very quickly and accurately.  I'm also great with budgets and timelines.  If these aren't your strengths, this model may not be for you.

5. IF you're using this plan for a flip, be really darned sure of your ARV. If you sell and it's not enough to cover all the credit you've pulled, make sure you've got a pay back plan from your personal funds. When I did this, I was guessing at a refi appraisal figure. Had I not made that number, things would have been tight for me personally, but I'd have manage it. Luckily, this property also rented for more than what I originally thought it would too. (Really, this property was an incredibly lucky find all the way around - I haven't been able to duplicate quite this level of success since then).

People's biggest criticism of this plan is that the credit card companies charge cash advance fees.  Yes, that's true.  As I said, mine were between 1% and 5%.  When hard money loans are anywhere between 2 and 4 points PLUS 10-15%, I'll take a plan that is the equivalent of 1-5 points (mostly 3) and 0% any day of the week.

So takeaways:

1.  Know the terms and conditions of each card

2.  Plan carefully

3.  Have wiggle room in your plan (both time and money)

4.  Build contingencies in your plan.

5.  Discipline!

Originally posted by @Jesse Ritter :

Hello Everyone,

I recently formed a real estate LLC as a 50/50 partnership. We are looking to have credit cards as an option to:

1) Fund an entire Flip

2) Pay for materials for a Flip

Questions:

1) Should we apply for cards through our LLC or personally? I see lots of people talking about using 0% APR cards. We applied for an American Express Card through our LLC and get $2,000 of line of credit. Not much we can do with that.

2) What specific cards do you recommend and please designate whether the are personal credit cards or business credit cards (applied for as a business).

I appreciate everyone's help!

-Jesse

 For awhile Discover card was offering a 25,000 personal loan with a 5 year payoff. I purchased a property using that. Interest rate was pretty good, 7% or 8% I believe. Don't know if that program is still around though.

James Wise, Real Estate Agent in OH (#2015001161)
216-661-6633

@Linda Weygant   for everyone of you who Is disciplined enough to pull this off the credit card companies and their actuaries are counting on 9 to F It up and end up in massive credit card debt paying interest payments for the rest of their life.

there is no WAY a lender makes zero % loans if they are not certain that a vast majority will not pay them off within the grace period.

I too have done this in my early days.. I bought a Honda quad with a zero interest come on..

and I think I might have bought some furniture that way.. but I could at anytime pay it off.

I think the closest we really get to this these days is 0% auto loans but you know the interest is backed into the sales price at the end of the day.

Agreed, most people will mess this up, but not all and it can be a great way to access cheap money IF you’re disciplined. One of the credit cards I carry recently offered me a cash advance special where I could access up to 95% of my credit limit ($35,000) at 0% interest for 13 months. I went to check out how much the fee was and it said 3% or $75, whichever is less. I was surprised, because typically they say whichever is more. I wrote myself a check from that credit card for $33K and paid $75 to have that money and use it for one year. That’s like .25% and even if I just threw that money in a one year CD paying 2% interest, I’m making money on the deal. It did cause my credit score to tank, but that’s only temporary!

Thank you everyone for your responses. They have been very insightful.

Through applying for some credit cards with my business partner we have learned that we can't possibly get enough credit through traditional credit cards or charge cards to fund a flip.

I have, through this post, met someone named Adam Horowitz that offers a Line Of Credit product that allows you to use a line of credit for 18 months and it costs you 8% of the line you establish. For example, if I get approved for a $200K line, I will pay $16K and be able to use that LOC for 18 months interest free.

I am in the application process now and will update this thread once I have experience using the LOC. I am very excited to begin using this source of funding because if I'm able to use the line for 2 or 3 flips I will bring my effective rate potentially down below 3 percent.

One other source of funding I have recently discovered is the ability to use your 401K to loan yourself up to 50% or $50,000, whichever is less. You then pay your 401K a percentage and can use that money to invest in other opportunities, provided, you make the loan payments on time to your 401K.

-Jesse

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