Real Estate Agent · Petaluma, CA · Member since 2017 · 63 posts · 35 votes
I've heard a tremendous amount about using promotional 0% interest business credit cards to fund buy-and-hold investment deals. Dozens of podcasts & articles explaining the how-to's and the advantages of doing this. Okay, fine. I get it.
However, the one thing I've never heard is how exactly you go about paying these cards back before the introductory period runs out and the accumulated interest bankrupts you.
The only option I can figure is that you (hope to) refinance your cash out and pay back the cards(?). This, of course, would require the bank appraises 20% equity on top of what you paid.
Additionally, if you got a loan on top of your cash advance (say, you only had enough cash for a down payment) then I imagine you're also paying loan fees twice.
This may all be fine and dandy if the numbers work, but is this a viable plan or a total gamble?
I completely disgree with the notion that using credit cards for purchasing properties is irresponsible but I can respect the opinion. Borrowing money in any fashion is irresponsible if you don't know what you are doing whether it be from a bank or a friend. I have performed this exercise a number of times using my own personal credit cards, and other lines of credit. For instance, I have 3 personal cards with limits of ~$60K, ~$30K, and ~$30K. I get 0% promotional offers for 12 - 18 months consistently. My credit card companies will direct deposit the cash into my bank account in a day or two upon request. Origination fee ranges from 1.5% to 3% of the cash advance with 0% interest going forward. I find a deal and purchase the property at a discount with the cash. I rehab the property and then later go and get 30 year fixed rate conventional financing based on 70% - 75% of appraised value. You gotta know your after repair value. With the cash back from the financing I pay off the credit cards and wait until I find the next deal to do it again. I have even bought properties with this CC method and sold them wholesale a week later. Got the cash back from the sale and paid off the card. Stuffed the profit in my pocket :) Sometimes I dont even pay the credit card off if I have another deal in the pipeline since I am not paying interest on the money. I just use the money again. I view it as using other people's money, no different than a private lender. Be careful about credit utilization dinging your credit score below 720 and clogging up your refinance. I am not saying my method is scalable but it does work with discipline.
I have heard of this too, and I have heard varying results. I would be concerned about what it would do to my credit by having multiple credit cards all at once. Credit is so important in this business.
I will be interested to see what others say in response to your question.
Lisa, I do know this... They are business credit cards which report to different agencies than your personal credit, so it wouldn't affect your personal status at all. It may even improve it since you wouldn't have to put your business transactions on your personal cards anymore. Also, business cards are evaluated differently and high balances aren't treated as severely, if at all.
My main concern is how to structure a deal so these get paid back in a timely manor.
Completely irresponsible IMHO. If you have to borrow money from a CC regardless of the interest rate you should not be purchasing property. It's like the crack of the financial world, nothing good can come from such a scheme. I'm sure others may disagree but frankly it is ill advised. I can't even fathom going into a legitimate lender and asking them to refinance a property I purchased from a CC. Mind boggling that such a method of purchasing property is even posed - all it's telling me is simply this; " Be Fearful When Others Are Greedy and Greedy When Others Are Fearful'"
Warren Buffet
Many legit ways to purchase property. This does not even register as a 1 on the scale . Sounds like i'm passionate - need to stop the rant. Maybe time for me to start selling and wait for the fear to arrive once again and pick up some more amazing opportunities.
Thanks for the rant, Chris ;) I get your perspective as well. It's certainly not for everyone, but the general idea is one I'm quite familiar with. It's no different than any other deal using other people's money (private money, hard money, etc) which I would imagine falls under this category you do not endorse.
I've bought many things with credit (cards or loans, all the same to me) and flipped them for double or triple what they cost me. All without using a penny of my own cash. It's just a technique. One you have to be very comfortable doing. Otherwise, I agree, one should not even consider a method such as this.
I've not come across or qualified for most of the "legit" ways others have been blessed to find for their investments. Thus, the need to look elsewhere.
Still, there is this factor I'm questioning which may be the discomfort that keeps me from going this route.
I completely disgree with the notion that using credit cards for purchasing properties is irresponsible but I can respect the opinion. Borrowing money in any fashion is irresponsible if you don't know what you are doing whether it be from a bank or a friend. I have performed this exercise a number of times using my own personal credit cards, and other lines of credit. For instance, I have 3 personal cards with limits of ~$60K, ~$30K, and ~$30K. I get 0% promotional offers for 12 - 18 months consistently. My credit card companies will direct deposit the cash into my bank account in a day or two upon request. Origination fee ranges from 1.5% to 3% of the cash advance with 0% interest going forward. I find a deal and purchase the property at a discount with the cash. I rehab the property and then later go and get 30 year fixed rate conventional financing based on 70% - 75% of appraised value. You gotta know your after repair value. With the cash back from the financing I pay off the credit cards and wait until I find the next deal to do it again. I have even bought properties with this CC method and sold them wholesale a week later. Got the cash back from the sale and paid off the card. Stuffed the profit in my pocket :) Sometimes I dont even pay the credit card off if I have another deal in the pipeline since I am not paying interest on the money. I just use the money again. I view it as using other people's money, no different than a private lender. Be careful about credit utilization dinging your credit score below 720 and clogging up your refinance. I am not saying my method is scalable but it does work with discipline.
I've never been able to find any 'business' cards that are doing 0% balance transfers.
I have played the 0% balance transfer game for some larger inventory purchases in my retail biz and good old 0% balance promos at Home Depot (personal) and Sears have financed quite a few apartment renos too.
With a long and stellar credit history It doesn't seem to impact my FICO4 & 8 too much but it will *crush* the vantage 3 score which penalizes HEAVILY those who actually USE their credit and I'm talking still less than 30% of available. At one point this year my FICO8 was 100 points higher than the vantage 3 score.
As a lender using cards is fine just make sure you have the funds seasoned (2+ billing cycles) in your account prior to engaging into a loan transaction because funds sourced from an unsecured source cannot be used as down payment or closing costs. This applies to conventional financing of course. In the commercial & private money world its all fair game and case by case.
Use of credit cards to purchase properties to acquire/capture equity, create, cashflow, provide additional tax shield/benefits against your income, and improve your real estate investing venture is definitely one way to go about it but it should not be the sole method since there are risks like many have mentioned above.
If you're using business cards (linked to your FEIN - federal employer identification number) and it doesnt report to your personal credit then it might be more prudent credit wise because your Fico scores won't tank when you max a business card out versus a personal credit card (drop of 80-100 fico pts temporarily till you payoff).
So with prudent timing (funds seasoning), knowledge of how to maintain your ficos so you still qualify for your cheaper conventional money, and how to use the cards to purchase can definitely expedite your REI journey.
Most people I encounter would not have the know how to do it correctly as I see plummeting fico scores, in ability to qualify, and many other issues with using cards to invest on a weekly basis.
@Bukka Levy it's gambling. Study financial history when speculators bet long with short term money. Rising intereste rates will f'ing kill you. short term sure bets is what you use adjustable short term money for...
I never thought of doing this with business credit, but I feel like this can be a cool way to approach the BRRRR method with business cards offering 0% introductory APRs for up to two years without affecting your ability to refinance due to the utilization not affecting your personal credit. You pay the 3%, season the money for 2 - 3 months while looking for a deal, get into the property, and refinance out in 6 months. ANNNND, if you get a DUNS number (not sure if these is required) you can improve the credit worthiness of your business, possibly allowing out take out larger LOCs or even selling it to someone else to take advantage of the businesses credit rating!
Also, I would not consider this strategy betting long with short term money given the refinance shortly after purchase. This is no different than using a HML except exceptionally cheaper. Obviously, one must use the BP principles and "Buy right" to significantly reduce risk. But with out risk, there is no reward. Just my $.02.
@Frankie Woods That’s pretty much the idea. The real trick to the whole thing is knowing your ability to refinance your money back out and executing before you lose your 0%.
@Bukka Levy exactly. However, most of my downpayments are around 20 - 50k. I could easily pay that off in year years if I needed too. Or I could take out a personal loan at 6-7% interest. Or I could find a partner. Or I could sell. As long as you have exit strategies and the property is cash flowing, I would feel confident in utilizing this strategy.
I also think paying 3% for zero interest money is also well worth it. Just factor it into your numbers from the beginning as closing costs coupled with the potential refinance in six months.
I’m looking into this option too.
How easy is it to liquidate into cash to make acquisitions?
My LLC is a partnership. Can my partners get the same cards?
You could each get cards as individual llc’s via individual EIN’s.
I haven’t cashed a card out yet but there are various methods. Buying and selling assets being one that takes a few days I believe. I’m looking into Plastiq which can issue a check or bank transfer and costs 2.5%.
@Chad Trail I would recommend using a service. Because of their experience and contacts they can get a much higher success rate, much faster.
They’re all a bit pricey, though, so you’ll want to factor that in. I don’t know enough about the individual firms to recommend one in particular just yet.
Bukka Levy you can do this if you know what you’re doing.
I would be leery of doing this as your first deal. I would personally want to do it the first time with all my own cash most likely. It just makes it way less risky.
What happens if your appraisal is low? All the education in the world can’t help you if the appraiser just doesn’t give you the number you need or want.
That’s a lot of interest to be on the hook for if that happens. For me that risk isn’t worth it. My current CC (just for personal use) has an APR of 24 percent, and I have good credit.
I get that BRRR is like a buzzword here but you have to consider the risks. Is it worth to go through all that rehab, use all this high interest money to BRRR when you could just buy something already rented off the mls?
If that’s the case I’m not sure it’s worth it. Keep in mind I’m still talking about getting something 10-15 percent below market value, just not the 30 plus percent below you need to do in order to make this work.
For me, this is not my first deal. I’ve bought & held several properties, fixed and flipped as well. However, I no longer have the capital and am looking for other options.
I’d also like to continue to do it on my own (without partners) so this seems like a good option.
I also am not keen on rehabbing for my first few that I’m looking to do out of state. Thinking I want to buy wholesale or below value enough that some minor cosmetic upgrades and time might afford a refinance.
Even still I understand the risks with this method. Lots to consider.
@Bukka Levy then in your case by far the best option is a private lender. You find someone with a lot of money who will loan you some at probably a sub 10 percent interest rate. You can use that to acquire and rehab then refinance.
That is the route I would likely choose myself. I will probably never do the credit card thing, but I’m also conservative my nature.
As an example of my conservative nature I’m already paying down mortgages that have a 5 percent interest rate. Why you ask? Well I’m one year once it’s paid off, beteeen the added cash flow and reduced insurance premiums I’ll make around 25 percent on that money. Plus then I can roll all that over into more deals and paying down more debt. It’ll only take a year or two to pay it off and as someone who’s under 25 my time horizon is extremely long.
The goal is to have a mix of paid off and leveraged properties by 30 so I can then expand aggressively in that decade. At the end of the day if you’re a self made millionaire no one is going to criticize you for doing these things.
@Caleb Heimsoth There’s one of two problems with a private lender. Either a) They are a “partner” to some extent or b) They will still want 20-30% down.
To me, option B is a waste of time and money because I’ll still have to refinance to get my money out to do another deal.
Option A would be fine if you can find someone to just put up money, collect their payments, and let you continue rolling it into future deals. I’ve been looking for this person for two years but I haven’t found anyone that isn’t looking for the quick massive returns others are getting here in California.
I’ll continue to look for private money in that form, but I won’t wait any longer. I need other options to work for me meanwhile and this is what I came up with. Not my first choice, but currently my only option.
BTW, good on you. I was set to retire in my 30s doing what you’re doing but made a dumb mistake that cost me everything (don’t ask. Too long and personal/specific to me).
Starting over has been much harder but I have enough experience that I can do it again faster once I get off the ground.
I’m looking at this credit card option for a manufacturing business. I’d use it to get into a lease and use it as some operating capital until the first invoice gets paid. I need about $150k.
@Chad Trail Well there you go. That exactly what these types of business cards are for and why the banks issue them. So I'd say you're right on target.
Bukka couple of ideas that maybe you have already considered.
1.) Talk to a commercial lender and obtain a line of credit. I have purchased 32 SFR since 2015 thru the end of 2017 using this method and regarding down payment see # 2
2.) Use the security deposits you hold for collateral. Eg... My lender requires 20% down for the original purchase ( he uses my security deposits for the 20% so in essence he koans me 100% of purchase price ) - I then pay out of pocket for any rehab costs ( here is where you use your CC ) then we get it reappraised I refinance pay off original loan pay myself back and then repeat often having as many as 5 props at a time now down to 3 we are rehabbing.
So... I get into my SFR for $0 only out rehab $ for a very short period of time usually about 90 days then keep growing! Try this out and let me know or scenario # 2
Do the same thing with a retired friend/family member who is making 2% on their money offer them 5/6 % place it in the "security deposit acct" and repeat.
I’m hesitant to use this option for real estate other than cheap financing to BRRR renovate a property I already own & is cash flowing! I don’t flip & have moved into mostly passive syndication deals for apartments & more.
I did use this strategy recently to invest in a mining operation for Cryptocurrency that’s surviving this massive extended correction. I also have used it to successfully buy a car at auction, fix it & then obtain a 2.85% used car loan from a credit union.