Understanding Credit Cards

Atlanta, Georgia
Rehabbing & House Flipping
2moFollow

Understanding Credit Cards

Vitaliy Zima
Member since 2020 · 30 posts · 23 votes

Hello!

I'm currently under contract on two properties. Both properties will need light cosmetic rehab. I currently purchase properties using HELOC. I have heard on multiple occasions about using 0% APR credit cards where you have 12 to 24 months with no interest. I'm having difficulty trying to understand what the true benefits of using these credit cards are. Can someone explain this to me? If I were to open a credit card and buy material for $10,000, what benefit am I really getting from opening a 0% APR credit card? I have the option of using my HELOC, yes I do pay interest on using that, but when you have a credit card, you still have to pay it down within the 12 to 24 months. Plus, you are then closing the credit card, which is a hit on credit score as far as I understand.

Are there other true benefits that I'm missing out here? Are there any specific credit cards that are currently great to use for rehab?  I'm buying these homes under personal name, not company. 

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James Mc Ree
Rental Property Investor · Malvern, PA · Member since 2016 · 1k+ posts · 933 votes
2mo

Paying off your credit card has nothing to do with your prepayment penalty, if that is what you are asking. They are separate lenders.

Think of it this way. You can buy $10,000 in materials for 0% for 2 years (or whatever timeframe). The value of that is the percentage rate of your HELOC. If your HELOC is 7%, you just saved $1,400 and your 0% is locked in. That catch is your rate will skyrocket at the end of the promotion period. It might go to 29%! You have to be sure you pay off your balance before then. That is the big risk, plus a hit to your credit utilization.

Here's a way to do it. Borrow $10,000 and plan to pay it off over 24 months or whatever. $10,000 / 24 ~= $420/month. Put that amount of money into a high yielding interest bearing account. You should be able to find 3.5% - 4%. Now, you are saving 7% and making 3.5%+, so a 10% yield with no risk or work. You make even more if the Fed raises rates. Use this savings to pay your balance at the end of the promotion period.

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  • Samuel Awosolu
    Lender · Florida / Georgia · Member since 2025 · 58 posts · 28 votes
    2mo
    Quote from @Vitaliy Zima:

    Hello!

    I'm currently under contract on two properties. Both properties will need light cosmetic rehab. I currently purchase properties using HELOC. I have heard on multiple occasions about using 0% APR credit cards where you have 12 to 24 months with no interest. I'm having difficulty trying to understand what the true benefits of using these credit cards are. Can someone explain this to me? If I were to open a credit card and buy material for $10,000, what benefit am I really getting from opening a 0% APR credit card? I have the option of using my HELOC, yes I do pay interest on using that, but when you have a credit card, you still have to pay it down within the 12 to 24 months. Plus, you are then closing the credit card, which is a hit on credit score as far as I understand.

    Are there other true benefits that I'm missing out here? Are there any specific credit cards that are currently great to use for rehab?  I'm buying these homes under personal name, not company. 


    Hello Vitaliy,

    If I understand your question I think you want to know what is the benefit of using one over the other correct?

    Using a 0% APR credit card means you're essentially borrowing money for free for a set period ( 12–24 months or whatever terms are given). You're right that you still have to pay it back within that window but the benefit is you're not paying interest while you use that capital to improve or stabilize your property.

    Your HELOC, on the other hand, charges interest the moment you draw funds. Even if the rate is low, it's still a cost of capital.

    Also you don't have to close the credit card. You can just keep a zero balance which will improve your credit utilization. So not financial advice but you can use the credit cards to purchase the materials. If it takes you 8-9 months. That's 8-9 months you don't pay interest on those funds. When then rehab is completed. When you sell the property, if that is the end goal, you payoff the credit cards. 

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    • Vitaliy Zima
      OP
      Member since 2020 · 30 posts · 23 votes
      2mo

      @Samuel Awosolu thank you for your input. These properties are going to be by and holds, and there is a pre-payment penalty with my lender for 3 to 5 years. Meaning, if I were to refinance or sell the property, I have to pay a penalty within those 3–5 years. With that being a factor, and me buying it as a buy and hold, does it still make sense to use credit cards to buy material and pay off over the course of a year?  

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    • Samuel Awosolu
      Lender · Florida / Georgia · Member since 2025 · 58 posts · 28 votes
      2mo
      Quote from @Vitaliy Zima:

      @Samuel Awosolu thank you for your input. These properties are going to be by and holds, and there is a pre-payment penalty with my lender for 3 to 5 years. Meaning, if I were to refinance or sell the property, I have to pay a penalty within those 3–5 years. With that being a factor, and me buying it as a buy and hold, does it still make sense to use credit cards to buy material and pay off over the course of a year?  


      The pre-payment penalty definitely changes things. Because you're buying and holding with a 3–5 year prepayment penalty, the 0% APR card only makes sense if the rehab is light and you can pay off the balance with cash flow from the rentals and within the credit card promo period.

      If you're unsure you can do that, the HELOC is the safer and more predictable option in my opinion. As someone mentioned above you can see about setting up an account with a vendor to purchase materials on a net 60 or 90 day. However I don't think most vendors will give you $10K worth of purchases out the gate on a net 90 without establishing some sort of history or relationship. However you can always ask about their process.

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    • Vitaliy Zima
      OP
      Member since 2020 · 30 posts · 23 votes
      2mo

      @Samuel Awosolu thank you for all of your advice, makes sense now! 

      1Reply
  • Peter MckernanBusiness Member
    Residential Real Estate Agent · Irvine, CA · Member since 2013 · 2k+ posts · 1k+ votes
    2mo

    Yes it is the 0% apr not getting any charges while you are flipping. I would suggest not doing this though as it is a slippery slope, I would rather suggest working with vendors that put you on a 90 net, so your materials will not need to be paid for 90 days. If you are doing a good amount of production, or you have that great relationship builder in you, there are vendors that can do this for you. It would build a great foundation and you can put in materials day one of rehab and they get it on the market and listed prior to paying the vendor back for the full materials.

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  • James Mc Ree
    Rental Property Investor · Malvern, PA · Member since 2016 · 1k+ posts · 933 votes
    2mo

    Paying off your credit card has nothing to do with your prepayment penalty, if that is what you are asking. They are separate lenders.

    Think of it this way. You can buy $10,000 in materials for 0% for 2 years (or whatever timeframe). The value of that is the percentage rate of your HELOC. If your HELOC is 7%, you just saved $1,400 and your 0% is locked in. That catch is your rate will skyrocket at the end of the promotion period. It might go to 29%! You have to be sure you pay off your balance before then. That is the big risk, plus a hit to your credit utilization.

    Here's a way to do it. Borrow $10,000 and plan to pay it off over 24 months or whatever. $10,000 / 24 ~= $420/month. Put that amount of money into a high yielding interest bearing account. You should be able to find 3.5% - 4%. Now, you are saving 7% and making 3.5%+, so a 10% yield with no risk or work. You make even more if the Fed raises rates. Use this savings to pay your balance at the end of the promotion period.

    1Reply
    • Vitaliy Zima
      OP
      Member since 2020 · 30 posts · 23 votes
      2mo

      @James Mc Ree great idea, but I'm currently buying all rental properties using 100% heloc. I hold no funds in savings/checking accounts. Only 401k, Roth/ira and 2 open HELOCs that are funding all of my deals. I do understand that utilizing a credit card that has 0%apr I'm saving by not borrowing those funds from heloc. Thanks for advice! 

      0Reply
  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    2mo

    Buy with credit card, get $200 cashback, or $700+ with a new credit card and large purchases within 90 days of opening. 2 years later when it's due you pay it off with the HELOC, you've saved that $1,400 in interest at 7%. Heck, you if you canoe a few grand in payments towards Heloc that would have gone towards credit card that's another few hundred $'s. You should easily save $2k on your $10k purchase. And it costs you nothing.

    Luckily the government in its infinite wisdom s declared credit card cash rebates tax free. Though you may get caught in the bonuses, depends on the bank and the amount. 

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