Understanding Credit Cards
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.
Most Popular Reply
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.