Credit Card to Fund Renovations...lots of questions!

27 Replies

I’ve been doing a lot of research into financing methods as I’m about to finally start working towards my first deal. Purchase financing aside, I’ve seen a lot of differing information on using credit cards (personal and/or business) and/or business accounts to cover actual renovation costs. So, a few questions:

  • Can I use my personal credit card(s) or should I get a business credit card under my LLC? If I can use either, what are the pros and cons of using each?
  • Is it worth it to get a Lowes or Home Depot (for example) Business Account? Is it difficult to qualify? My understanding is I could pay the business account off monthly using the credit card, then pay the credit card when due essentially freeing up my cash for two months. I’m not trying to float checks here, but am just looking for the smartest way to operate.
  • If I get a business credit card, how does it affect my credit? Is it difficult to qualify for one?

Most of the info I’m finding seems to be people using cash advances on their personal cards. Is there a reason to do that vs just charging on the card?

I feel like I’m missing something simple here that would connect all the dots for me. Any help is greatly appreciated!

Scott

@Scott Young I took advantage of zero interest credit cards when I was first starting out to leverage more funds for renovations.  There's several good cards out there if you have a decent score that will give you zero interest for up to 18 months.  I had four of them with a combined credit line of over $25K.  This allowed me to do more than I could without the cc's.  Not saying its the best plan, but its an option.  You better be able to pay them off though, or when the interest rates kick in, it will kill all your profits.  Also, by using them right and paying them off, they helped me build even better credit.  Its free money, as long as you use it correctly, and know you can pay them off.  Don't do cash advances, just use the CC's to pay for anything that can be paid by CC, materials, utilities, some contractors take cc's, etc.  Cash advances typically will still charge you fees. 

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Whatever you do, don't use cash advances from any credit cards to fund anything. They are ridiculously expensive, and if that is your only option, you need to save more. We use travel/airline business cards to fund renovations and use the points to go on free vacations. We don't carry a balance, paying interest on a credit card and carrying a balance will zap your cash flow and hurt your DTI. Good luck!

Here is what I did when I was starting out.

Find a good credit union or two.  They typically offer good rates and do not have a service fee for cash advance.  Run up this card.  You can get another credit union card or a standard bank card with a balance transfer at zero.  Credit unions typically do not change a transfer fee, but generally  do not have a promotional interest rates at the same time.  Banks will charge you a 3-5% fee.  Your effective interest rate would be the transfer fee.  Many people overlook the fee.

The key is to shop around.  I have head people say that doing all the applications in the same day helps the approval process since all the inquiries post on the same day.

Corporate cards are a great tool for cash flow management. They can also put you in a world of hurt as the rates are expensive, so don't pay anything that you don't have a solid ability to pay off at the end of the month/before interest starts.

Don't bother with a Lowes or HD account. Their security is godawful and you can't pay them off with credit cards. Customer service is a nightmare. Just paying the darn things can be tough thanks to a perpetually broken website/customer service portal. You'd be better off getting trade accounts at real supply shops, but be aware that most charge 3% to pay with a credit card.

Second to cash flow management, reward points can be life-changing if you enjoy travel (or you think you'd enjoy travel). Personally, I use the Chase Visa rewards system (Corporate card plus a personal card to transfer points off to) and it is great. Check out The Points Guy (kind of like BP for reward points) and read up on strategies before committing to a card.

The thing you don't want to do is get a CC and treat it like a line of credit. CC are too volatile, short-term, and expensive to be used that way. If you need a line of credit, get a line of credit. Don't treat a CC as a poor-man's line of credit!

@Scott Young , I've funded all of my flips using HD credit cards. I make sure to buy enough to qualify for the no interest periods - it's like an interest-free loan. 

However, please make sure you can make the minimum payments and you pay the entire thing off before the no-interest period expires or you will owe all the interest from the very first day. Read the fine print.

@Scott Young @Jeff Filali

I am going to echo what Jeff said.  When I started investing, I leveraged my credit cards through the 0% offers.  It worked out real well for me BUT you need to be disciplined about it and stay on top of your payments.  If you do, your credit will actually strengthen over time and you probably will get larger lines for the future so to me, the risk is definitely worth the reward.

Use something like nerd wallet to figure out what works best for you. CC can be a great tool if you use them right and what they offer is inline with what you need. I've gotten great value from my travel points before the cost of the ticket I got far exceeded what I could of gotten as cash back, but if you don't travel that'd be point less. 

If you're going to be spending a lot... you might look into doing multiple cards to hit the required spend for the bonus, again ONLY if the "rewards" fit your lifestyle. 

I used a Home Depot Project Loan card on one of my last projects. Interest free payments at first, and then the interest rate kicks in at 7%, versus your big credit card company's 20%+ interest rate. It's super convenient if you have multiple projects going on at once. It makes keeping track of expenses much easier rather than looking at a credit card statement and saying, "hmm, what property was that can of paint for?". You will know much quicker when it's time to pay bills and track expenses.

-Steve

We just used a 0% for 18 month no interest credit card to fund $6k in renovations, paid off in full within 6 months. It's a no interest loan, so as long as you're smart about it, why not?

Credit cards can definitely work, especially the 0% interest offers. For example, I bought an entire house and did minor rehab work off 0% interest credit card offers. I had 3 personal cards with ~$130K worth of credit. I used two of the card's cash advance for ~$75K on the 0% offers and they direct deposited right into my checking account. All happened in about 3 days. I refinanced the house after purchase and rehab in about ~30 days, got the money back and paid off the cards. I don't have fancy cards either, BoA, Chase, Capital One. I just got another BoA card with $20k limit. They give me 0% offers every day it seems like. I also recently got a HELOC and small personal line of credit for about ~$50K from my credit union. Just through personal credit and not a lot work (except for doing the things to get good credit) you can create ~$200K in funding. Sure, you cant scale doing this but for jumping on a couple of great deals a year it works.

@Scott Young I have a very risky attitude when I was starting out the business. I did max CCs then take out some Balance Transfers, that was before when I was desperate. HD (and should be same as lowes) is still issued by Citi, so I bet it is a regular credit card but just offer you 5% on all purchases, however, there is a better way, I used to have a bunch of Lowe's discount cards, and HD will match those (10%) and will not offer 5% on top, so it worked for me when I needed it. Back to your question, I would use/apply under business cc account, it gives you 5-10x your capacity when you apply one vs personal. I have one with Amex called Plum, it offers 1% balance of statement month as minimum balance (with a 1.5% back when you pay 10 days after statement closing), but 99% can be paid on the following month. It's not really 60 days, but it's 30 days more than a regular card. I use the Credit Karma app, they rely on TU and Equifax to offer you the best ones. I've been using it rigorously, and they always pull scores softly so nothing will show on your report, or so they say. If you apply directly from a bank or any other application like HD/Lowes, they will hard pull them and it will ding it, with the CK app, I get approved on cards without the ding. I do have Platinum with Amex and Black Card with Barclay on the personal side, then have Plum with Amex, then a couple of dozen tradelines .  Again, if you want this route, use all of the business cards first before tapping in personal, IRS will not be happy and they might audit you both on personal and business and that is a can of snakes, not worms anymore.

As what @Aaron McGinnis has said, together with his great wisdom, it is best you get tradeline with a regular supply house, I had no problem getting approved with any amount I applied for with only 3 month bank statement application and references. They carry everything and some don't even have finance charge when you are late, I usually set them up Net 60 or Net 75, but I always tell the accounting department that I need 15-30 days to perform/install their materials, and 30 days to get paid. 

Good luck. Hope this helps.

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Thanks everyone for the advice...it's exactly the kind of conversation and information I was looking for.  I understand the risks involved but was just wondering if I was missing anything.  Full disclosure, I have great credit and decent funds but they're tied up in Vanguard and I don't want to tap them if I can avoid it but I could if looming interest rates look to become a problem.  

@Filipe Pereira totally agree with your philosophy but I need to work to get those cash reserves built up!

@Jeff Filali @Steve Kontos @Daren H. @Lesley Resnick Did getting all those cards ding your credit score at all?  If so, how long did it take to recover?  It took a long time to get my score and I'm worried about it dropping if I start applying for cards or balance increases.  Could be I'm worrying about it too much...

@Corby Goade Yup, I got squared away on those cash advance fees after I did some more digging...I'll be staying away from those!

@Aaron McGinnis Thanks for the info on the HD and Lowes cards.  I wasn't aware you couldn't pay them off with credit cards...that puts a kink in my plans.  Thanks for The Points Guy reference...I'll go check it out!

@Steve Porcello I wasn't aware of the Project Loan card...I'll check it out!

Thanks again everybody!

@Manolo D. My Plum Card requires 10% payment to extend the payment to ~60 days, and provides the 1.5% rebate as a statement credit for the balance that is paid off within one week.

Also, my Lowes Business Account Card is held by Synchrony Bank and cannot be used anywhere but Lowes.

@Dan Schwartz 10% is correct, just checked. And the 1.5% for me is 10 calendar days, you might want to double check. Both HD and Lowes are store only, that's why I never liked them, I have discount coupons in Lowes that I use in HD and vice versa, usually 10%, I ask to match them, 95% will, I get 10% off then say 1.5%-2% cash back on my reg cards.

I've written about this before, but it's worth repeating...

Lowes and HD have some of the absolute worst security protocols possible. 

At one point in time, we did a huge amount of business with Lowes. Had a credit account with them with a rather high limit, dedicated sales rep who brought us lunch, everything. We had someone rack up $30k in charges on our Lowes card using a fake business card, in a state far away from Georgia. At first, Lowes didn't want to acknowledge that it was their fault and was trying to stick us for the entire amount. Eventually (After much consternation and wasted time) we got the charges reversed and got Lowes to acknowledge that it wasn't us.

The whole experience was absolutely horrible. We were, at the time, in the top 10 by volume customers at one of the region's flagship stores. To have that kind of compromise was time and heart burn that I didn't need to have happen. Afterwards, we closed both our Lowes and HD trade accounts. The risk was just too great.

@Manolo D. Yes, 10 days! :-) Good idea about the Lowes/HD coupons. Just this month, I chose not to take the 5% discount on a clothes dryer because putting it on a regular card upped the manufacturer's warranty by two years and gave a percent back.