Using a credit card for renovations?

6 Replies

I am closing on a four-plex in the next month and will be renovating it while I live in. I do not currently have a credit card and thought that using a card to pay for renovations would be a good way to start building more credit. What things should I be careful of and what recommendations do you have?

1st and foremost, don't open up a credit card until you officially have closed on the 4plex.  I have heard lots of horror stories of individuals opening up new lines of credit during the closing process and then losing the deal because things have changed and now the bank won't lend them the money.

Also, if you plan on doing any kind of refinance on the back end just know that if you don't pay off the credit card in full, the debt will count towards your DTI ratio when it comes to refinancing. Depends on the lender but I believe this could potentially cause an issue.

Last thing, if you're going to open up a new credit card I would look for something with some kind of benefit or reward.  It could be a introductory 0% for XX amount of months, it could be XXX bonus after you spend XXXX amount or simply something with some kind benefit that works best for you life eg travel points.

Hopefully you find this helpful and best of luck!

HD will give you 6-18 months interest free depending on purchase price. If you are hiring out the work, you can probably find a CC with zero interest for 12 months and only 3-5% draw fee. Depending on the size of your Reno, you could get it all done and refi having paid zero interest and just 3-5 points on the labor. That’s better than most HM and private. 

Your only issue might be that this is your first card. Hopefully you’ve got credit history via something like a car payment or mortgage. If not, your limit on the cards may not be high enough 

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What @Christopher Giannino said is on point...close first!  That being said, I did my last rehab on a 0% intro Discover card AND racked up a few hundred in cashback.  The alternative was to draw on my 5% heloc or pay it out of my cash account.  I simply paid it off when we closed the flip, and now I'm shopping again.  Regarding limits, business cards are often higher than personal cards, but you generally need to have been in business for at least a year in order to apply. Good luck and have fun!

- JM

Many contractors will add a 2%-3% fee to offset their credit card processing charges, which is fair just expect it.  You’ll also pay the same amount (or maybe a little more) to access cash from your credit card.  

Definitely pay attention to the rewards program on the card you choose, the points do add up especially when you’re spending like a rock star on a renovation project.  I cash my points in for gas cards and can go for a good amount of time without any expense when I pull up to the pump.....

@Christopher Giannino thanks for insight - do you recommend using credit card at all? I've heard of people mentioning the use of a credit cards (via convenience checks deposited into your bank) to make cash offers on houses.. they mentioned refinancing afterward to pull the cash out and pay back the credit card company. I could see the DTI being an issue though..