Just looking for a little advice. I have an REO that I am considering making an offer on. I feel confident about the numbers, but I wanted some advice on using a 0% APR CC Balance Transfer to float the purchase for about 15-18 months. The purchase price of the house is right around $35,000. I have very good credit and the income necessary to pay off the balance before the 0% runs out. What are your thoughts on venturing down this road? My wife and I both have VERY stable/well paying jobs. There is zero chance of either of us losing jobs/incomes in the next 2-3 years.
Thanks in advance!
You can't charge a house to your credit card and a balance transfer is only to transfer an existing balance from another credit card. You'd need to use your cash advance line on the credit card which probably has a lower limit and higher interest rate than your purchase line. You'll also need to be able to show proof of funds to make an offer on the REO.
Justin, if you have good jobs/income, why not try to secure some financing on the property?
I can't say I would recommend buying a property with a 0% credit card offer,,,,but I have done things like that, and I'm sure others here have too.
My biggest concern is what if you run into a $7,500 expense you didn't plan on, are you "tapped out" for credit/cash?
2 things to keep in mind:
-- most credit cards have large cash advance fees, so you might end up paying 3-5% fee even if the interest rate is 0%
-- your credit will likely take a hit from this because your utilization of open credit will be very high. If you get much above 30% of your open credit, then that is considered a bad mark on your credit even if you are making all necessary payments... in fact even if you pay it off completely each month.
@Patrick L. - Patrick - My understanding is that with balance transfers you can request that the CC company send you checks. Those checks can be cashed and used for anything that you want. Am I missing something here?
@Andy Collins - Andy, we already have 6 properties and we are running out of traditional ways to finance properties. I suppose we could look at hard money/private lending, but I just hate to pay sugh high interest rates and points. If a $7500 repair came up we would be able to get by.
@Brett Russell Brett- I was tracing the 3% fee, but that would only come out to around $900, which I did not think was too bad given the alternatives. Im really not too concerned with my credit being slightly affected.
Account Closed - I have 3 of these cards that I use for house flipping. The way to do it is to have other lines of credit that have check writing capability (or cash). Then transfer the balance to the credit card. That way your fees and interest are much less.
@Bryan L. Bryan - what other lines of credit will have check writing capability? I see where you're going with this. Makes a lot of sense....
Will any of your local banks give you a line of credit against the 6 properties you already own.
As long as you can get this done via any of the suggestions, I think it is a viable strategy for alternative financing that allows you to make strong all cash offers rather than financing offers. This is a competitive advantage, though in that price range, I have to assume most if not all offers on REOs of $$35k or less are for all cash from investors.
You didn't state what the strategy/type of investment property you are looking to acquire. I believe that will help guide you, and is the most important aspect of any investment, the exit strategy. I presume stated 18 mon timeline it's probably a flip.
Assuming that, you are prioritizing speed, control, convenience, and access to capital, with exceptionally strong cashflow individually. I presume you are going to be working fulltime, so you will have to pay for contractors and subs unless you're doing it yourself. Given that, look at the lowest transaction cost method for your entire pipeline of the project. (i.e. flip-(buy, fix, sell) is a cycle) ALWAYS.
Method 1: A LOC on existing assets with a 2x margin on your needs is favorable. (I.e. need $35k, get a line for $70k and only ever use 60% of your total LOC for any project to handle the inevitable unexpected contingencies.) Advantages: tax deductible interest if you use the funds ONLY for real estate projects and nothing else, ease of repayment, excellent leverage of current illiquid equity, almost no capital access costs, etc. Disadvantages: higher interest rate then other methods, but less than a credit card, credit reported, reduced operating leverage and ROI for the leveraged asset (prefer paid off properties if you have them in your portfolio), full docs required by lenders initially.
Another favorite method (advanced or for well heeled investors with capital) is a cash collateralize loan against a cash account in the bank. Almost every bank will do this loan with 20 min signature, NO credit checks, and the interest is incredibly low (normally a +3% margin from what they are paying on the deposited money, now 0.001% in most banks)
Advantages: No credit reporting, Not a taxable event, great on the balance sheet for your operations and net worth, access to preferred banking private banking rates for other products, useful as a score card for returns, built in emergency margin of 10% due to the 90% LTV banks use, etc.
Disadvantages: Large Liquidity needed, deposited funds at -2%+margin loss of value due to inflation (if at all), It's the absolute lowest form of leverage financing IF you happen to have $100k you can park for 18 months, why $100k and not $70k? The bank will use a 90% LTV. (economic losses are at the rate of inflation at 1-2% so just understand that)
Anyways, the reason to focus on the transaction costs to be a cash buyer:
-You are a cash buyer which will enjoy the highest leverage at the negotiating table for any deal.
-Prior to the purchase you can withdraw the maximum amount and deposit the money into an account 2 months before you expect to buy. (proof of funds with cash in hand) or if using my fav. a letter from any teller showing the current account balance of the collateral works as proof of funds.
- Transactions are cheapest for cash buyers, (no financing fees, etc), and fastest closings.
-You keep the returns as cash on cash investment which give you real returns, and simplifies the math.
-You don't have a $35k cash advance show up on your credit report, which would be a large account at 100% utilization, thus for 18 months, your credit score may be effected. (depends on the rest of your credit profile of course)
-Risk Adverse Partners: Like it or not, bank policy vogue is little or NO risk as possible, and you will pay for it in fees for the privilege of using their money.
Anyways, agree with other posters, if you are banking such FCF (Free cash flow or disposable income), you should really be in a position to cash up and play with your own cash but leverage it. Plus, I remind you to pay off any debts that don't make good tax-sense for leverage and debt and taxes. When you start to play this game, it's about tax protection all the time.
Just my 0.02 cents.
Account Closed The best example is a HELOC. Buy the house with a HELOC that you already have set up, then transfer from the HELOC to the card. That frees up your HELOC to buy another. I also have two unsecured lines with banks where I can go and get a certified check to use to buy properties. Then, transfer the balance to the credit card.
Originally posted by Account Closed:
I suppose we could look at hard money/private lending, but I just hate to pay sugh high interest rates and points. If a $7500 repair came up we would be able to get by.
While I can certainly relate to this and understand your position, I would like to point out that the most important aspect is not necessarily the cost of the borrowed funds but the access and availability of them. With that in mind, think of how many more deals yo could do by utilizing not just the financing strategies you have already used, but also private and hard money. Although the cost may be higher, in the long run, I am willing to bet that such access to funds will or allow you to build a larger and more profitable portfolio over the years. Just some food for thought. . . .
Account Closed You mentioned that you and your wife have a job, you should be able to get conventional loan and unsecured line of credit.
1) The REO home - single family, you can get in with 10% down without renovation money. If you want the renovation money (up to $35k), you need 15% down. For multifamily REO, you need 20% down regardless if you want the renovation money or not
2) You should be able to get an unsecured line of credit from TD Bank for a very good rate like 8.5% compared to the credit card. I bit you, with you and your wife's income, you will easily get up to $50k. You can also try Wel Fargo for up to $100k, but their rate is more than 10%.
3) If you have a primary single house and second home (also single house), you can do a HELOC. For primary single house, TD bank offers up to 89% LTV and up 80% LTV for second home.
4) I also have home depot card and 3 credit cards ($10k each card) in case I have to rehab or end up buying a fixer up.
Now you are ready to go shopping after getting pre-approval for a 30 years fixed rate. I also like REO investment, because it comes with equity (after fixing up that is) which allows me to cash out and hold then re-invest.
@Bryan L. I were unable to find a lender that is able to give me HELOC on an investment property. If they are, the maximum allowable LTV is very low. Do you have some references?
Guys, i dont think your understanding what @Account Closed is asking.
Im in a similar situation and am looking for low or 0% interest methods.
I currently have an LOC with a 5% fixed rate. but, like Justin, looking at using credit cards to temporarily finance the property to get 0% interest via a balance transfer.
its not about getting traditional financing, its about getting 0% money for 15 or 18 months which is a couple thousand dollars of free money if you can figure it out (hence the innovative financing category). it would need to be a card that doesnt have a balance transfer fee otherwise the savings is little to none. if someone is worried about paying off the debt or getting financing then they shouldnt be even looking at an option like this which doesnt sound like its a concern for Justin.
I know i would love to figure this out, just another way to annoy my banker with the fact that he isnt making money off me :)
Justin did you have any luck with this yet?
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing