Hello fellow BPers!
I have been an agent for the past 5 years now and started educating myself on flipping a couple of years ago. I have read as many blog posts, books and watched as many YouTube videos that I can on the subject (No guru youtubers). I now have enough cash reserves to buy a house cash in my market. However I do not yet have all of the money needed to fund the rehab portion of the deal. This is my question to you...do I wait to save up more cash to fund the whole deal including the rehab? Or do I utilize 0% APR credit cards that only require the minimum payments without interest for 15 months? Specifically looking at the Chase Freedom Unlimited card. I would have enough cash to cover the minimum payments each month and then pay the whole card off once we close on the deal.
What is your opinion? Thank you in advance for your responses!
When you say you have cash reserves how much are you talking? When you say it's enough for houses in your market how much do they go for? How much of a line can you get on the cards? Two things to consider:
1) The reason I ask is because you don't want to get stretched thin on your first flip. They tend to cost more in repairs than expected, fetch less than expected and take longer than expected. While it's cheaper than hard money if you stay in budget, you'll need a plan if you go over so it may be beneficial to go hard money and use your reserves for overruns and emergencies.
2) Will you be satisfied only working on a single property to completion if another opportunity arises while you're working on the first? If not you may not want to tie all your money up in a single property which could take far longer than expected.
@Johnny L.
If I were you I would you use the cards. 15 months is enough time to pay the car back and do another flip. I’m currently doing that now with a program called fund and grow.
It’s a service that helps you negotiate get the most out of buisness cards and you get more money every quarter on those cards. And every month you just pay the minimum but it’s only for 12 months instead of 15 months.
I hope this helped
@Johnny L.
If I were you I would you use the cards. 15 months is enough time to pay the car back and do another flip. I’m currently doing that now with a program called fund and grow.
It’s a service that helps you negotiate get the most out of buisness cards and you get more money every quarter on those cards. And every month you just pay the minimum but it’s only for 12 months instead of 15 months.
I hope this helped!
It did help! Thank you! I don't want to wait another year to get into the game. I also want to minimize risk. Ill be able to cover the minimum payments and paying no interest for 15 months is much better than a hard money loan. As you mentioned 15 months is plenty of time to complete a flip. Its good to hear from someone who has experience with credit cards.
When you say you have cash reserves how much are you talking? When you say it's enough for houses in your market how much do they go for? How much of a line can you get on the cards? Two things to consider:
1) The reason I ask is because you don't want to get stretched thin on your first flip. They tend to cost more in repairs than expected, fetch less than expected and take longer than expected. While it's cheaper than hard money if you stay in budget, you'll need a plan if you go over so it may be beneficial to go hard money and use your reserves for overruns and emergencies.
2) Will you be satisfied only working on a single property to completion if another opportunity arises while you're working on the first? If not you may not want to tie all your money up in a single property which could take far longer than expected.
@Johnny L. read the fine print on the 0% APR, its likely that you'll pay 2%-3% (of the amount advanced immediately) if you do a cash advance to pay a contractor who doesn't take credit cards. Not a show stopper but important to understand you wont be getting the money for free. I bought my first rental house and paid for the rehab completely on credit cards (purchase price was $9000 I think) and it worked out fine. Figure the cash advance fee in to make sure you aren't cutting it too close (Odie's point above)- put a really conservative estimate together of what its going to cost you to renovate the house and then add 25%, that will be closer to the actual cost.
i did a flip with credit cards last winter that made $36k & was extremely stressful because we did most all the work ourselves besides foundation.
It kept my friend who did maintenance & rental rehabs & more from college away from bankruptcy court.
I had 809 credit score at the time & used 7 different cards & promotions to pay the whole $30k for the flip costs most was charged at Lowe’s for discount gift cards (highly recommend plus coupons) without the 3% fee.
I was able to pay off all the cards before crazy high 20%+ interest hit as it sold in days for good money.
Frisco is an extremely hot market in Dallas right now & way overpriced...
But during downturn may only drop 20% because of strong local jobs base nearby.
@Johnny L. I used several credit cards on my first flip. I used it to pay some vendors and to buy materials. In my opinion, credit cards are definitely not ideal. Taking out a small mortgage is another option if the property is able to be financed. But if it's not, you have to do what you have to do especially on this first one. Make sure you get that card paid off timely though. And as you develop a track record, I'd start looking at connecting with some private investors. A few words of caution though. 1) If this your first flip, you might not want to buy property that needs massive rehab. Too many unknowns for your first one, 2) Get the property inspected BEFORE you buy it, 3) don't use all your cash to buy the property and only have the credit cards to fund the rehab. That will leave in a very illiquid position, 4) and if you mess up (which you will, lol) man it is not the end of the world. Just take all of the bumps as learning lessons.
When you say you have cash reserves how much are you talking? When you say it's enough for houses in your market how much do they go for? How much of a line can you get on the cards? Two things to consider:
1) The reason I ask is because you don't want to get stretched thin on your first flip. They tend to cost more in repairs than expected, fetch less than expected and take longer than expected. While it's cheaper than hard money if you stay in budget, you'll need a plan if you go over so it may be beneficial to go hard money and use your reserves for overruns and emergencies.
2) Will you be satisfied only working on a single property to completion if another opportunity arises while you're working on the first? If not you may not want to tie all your money up in a single property which could take far longer than expected.
1) Definitely! I understand what you're saying. What I mean is I have enough cash to buy a home and have 10-15k left over in reserves. The credit limit is around 30k. I don't plan on doing a complete overhaul flip for my first go round. I estimate the rehab will cost at least 20% more than I will estimate so I have some padding there. I also estimate that it will take at least 3 months longer to complete than expected. I can't seem to find a hard money lender that will lend me less than $75k. Which I don't need. I only require around 15k-20k. If I can find a hard money lender to lend even just $50k that may work. Also since I just started and have no experience under my belt im finding it hard to find a lender to lend to me.
2) Yes, 100%. Especially as im just starting out. I want to make sure I can focus on one at a time at first to make sure I get the process down. I plan on just doing a single flip or two flips my first year.
I appreciate your help and advice! If you have any advice for me with hard money lenders id love to hear it! Is it correct that once those loans mature the full amount is due? Most hard money lenders ive seen the loan matures in 13 months. Whereas the credit cards mature at 15.
@Johnny L. read the fine print on the 0% APR, its likely that you'll pay 2%-3% (of the amount advanced immediately) if you do a cash advance to pay a contractor who doesn't take credit cards. Not a show stopper but important to understand you wont be getting the money for free. I bought my first rental house and paid for the rehab completely on credit cards (purchase price was $9000 I think) and it worked out fine. Figure the cash advance fee in to make sure you aren't cutting it too close (Odie's point above)- put a really conservative estimate together of what its going to cost you to renovate the house and then add 25%, that will be closer to the actual cost.
Yeah for cash advances they do charge a fee. Which is still much cheaper than a hard money loan. I see what youre saying though! I appreciate the advice! As I analyze deals ive been adding 20% to the rehab cost to cover my bases but I may bump it to 25% due to your advice. Thank you
i did a flip with credit cards last winter that made $36k & was extremely stressful because we did most all the work ourselves besides foundation.
It kept my friend who did maintenance & rental rehabs & more from college away from bankruptcy court.
I had 809 credit score at the time & used 7 different cards & promotions to pay the whole $30k for the flip costs most was charged at Lowe’s for discount gift cards (highly recommend plus coupons) without the 3% fee.
I was able to pay off all the cards before crazy high 20%+ interest hit as it sold in days for good money.
Frisco is an extremely hot market in Dallas right now & way overpriced...
But during downturn may only drop 20% because of strong local jobs base nearby.
Its nice to hear from someone who has done it! Sounds like it worked out great for you! Do you recommend any specific credit cards other than the Lowes?
My market is also extremely hot. I am a realtor in my market and none of my listings have sat longer than 1 day on the market.
May I ask why you decided to use credit cards and not hard money?
Honestly, I'd be worried about doing this if it's your first flip. What if things go wrong and you get delayed?
I would look into taking out a small mortgage, and using the leftover cash to fund the rehab. Of course, that will cost you a couple grand in mortgage fees, but its a small price to pay for peace of mind and reduced risk.
Thank you Andrew! I believe that 15 months is plenty of time to flip the property even if something goes wrong. If im wrong in assuming that please let me know! If I use hard money most of the lenders im seeing have loans that mature at 13 months and they're due in full at that point. So I feel as if im buying myself three extra months. The homes I plan on flipping are smaller around 1000 sqft and no homes have sat on the market longer than 1 day for two years now in my market.
Unfortunately I can't find a mortgage lender who will allow me to pay off the loan before the seasoning period. They want their interest from the loan and are not happy if I repay that loan too early. They won't lend to me again if I do that. I would love to do it that way but can't seem to find anyone that will allow me to! Any recommendations are greatly appreciated though!
@Johnny L.
Thanks. I’m glad to be back to my passive investing in mobile homes & actively doing silver & crypto!
The Lowe’s card was great especially because they were doing 10% discount at the time.
I would look for a card that has longest 0% timeframe & low fees for cash into account immediately. Also consider your credit limit on each card as to protect your credit score as much as possible. Citi typically is longest at 21 months & also look for any signup bonuses to reduce expenses.
@Johnny L. I used several credit cards on my first flip. I used it to pay some vendors and to buy materials. In my opinion, credit cards are definitely not ideal. Taking out a small mortgage is another option if the property is able to be financed. But if it's not, you have to do what you have to do especially on this first one. Make sure you get that card paid off timely though. And as you develop a track record, I'd start looking at connecting with some private investors. A few words of caution though. 1) If this your first flip, you might not want to buy property that needs massive rehab. Too many unknowns for your first one, 2) Get the property inspected BEFORE you buy it, 3) don't use all your cash to buy the property and only have the credit cards to fund the rehab. That will leave in a very illiquid position, 4) and if you mess up (which you will, lol) man it is not the end of the world. Just take all of the bumps as learning lessons.
Thank you so much for your response Nicholas! Have you found any lenders in your area that will allow you take a mortgage ands pay it off within 6 months? All of the lenders I have contacted don't allow you to pay off the mortgage quickly once you flip the home. That is why im leaning towards credit cards at this point. These are all great tips, I really appreciate it! I do plan on keeping $10-$15k liquid in case I go over on the rehab or need money for any reason for the home. I needed to hear number 4! I have let analysis paralysis stop me from making any moves because I want everything to be perfect. I have to realize I will make mistakes and to learn from them.
Thank you Nicholas!
@Johnny L.
Thanks. I’m glad to be back to my passive investing in mobile homes & actively doing silver & crypto!
The Lowe’s card was great especially because they were doing 10% discount at the time.
I would look for a card that has longest 0% timeframe & low fees for cash into account immediately. Also consider your credit limit on each card as to protect your credit score as much as possible. Citi typically is longest at 21 months & also look for any signup bonuses to reduce expenses.
Id love to hear more about those endeavors!
Great tips, I appreciate that! Im going to check out the Citi cards.
@Johnny L. Try hard money lenders
Yeah ive been looking into them for a little bit now. The only thing is I can't find one that will lend less than $75k which I don't need. I only need about10-15K. They also mature at 13 months and then the full loan is due. So I figured 15 months with a credit card provides me more flexibility. If I could find a hard money lender that lends $50k or less to someone with no experience id love to do that but I just cant seem to find one unfortunately. If you have recommendations please let me know! I appreciate your response.
@Johnny L.
1. Get a conventional loan for 80% ltv, (This way you don’t pay mortgage insurance). Make sure there is no prep pay penalty. Take an interest rate at 0pts, because you’ll never hold it long...
2. Fix the house up with your cash, and have enough to comfortably do the rehab and make payments for worst case term. Use the credit card strategy to just buy material and use a cc that you get mileage rewards and double drip on the benefits. (After you close on the flip take a trip and relax! Recharge for the next one.)
3. Don't buy any house retail off MLS and look for an REO or foreclosure. I would never buy above 80% of ARV. There's tons of deals everywhere don't get desperate.
4. Build up your experience, after three deals in a year, you can go to any hard money lender and show them your track record and get 8% money all the time, and they’ll find your rehab to 80%.
5. Grow your rehab and real estate team. Keep improving your processes and talents of others. Stay humble and find ways to give back to your community. Do these things and you’ll do great!
@Johnny L.
I didn't read the response but my suggestion will be depending on what your long terms goals and tax strategy is regarding using credit cards. Because keep this in mind, credit cards are debt so if.....at any point....u wanted to try and get a loan....that reporting balance will be used again ur dti ration.....
@Johnny L. the purchase price plus rehab is only 15-20K? You're unlikely to find any lender that will lend less than 50K whether you're brand new or the most experienced investor. Terms and extensions vary from lender to lender. Most have a term of 12 months but can extend from anywhere to 1 to 12 months (though 12 months is typically more for larger projects). I'm presuming when you say mortgage lenders you mean conventional as most hard money lenders won't have prepayment penalties.
@Johnny L.
1. Get a conventional loan for 80% ltv, (This way you don’t pay mortgage insurance). Make sure there is no prep pay penalty. Take an interest rate at 0pts, because you’ll never hold it long...
2. Fix the house up with your cash, and have enough to comfortably do the rehab and make payments for worst case term. Use the credit card strategy to just buy material and use a cc that you get mileage rewards and double drip on the benefits. (After you close on the flip take a trip and relax! Recharge for the next one.)
3. Don't buy any house retail off MLS and look for an REO or foreclosure. I would never buy above 80% of ARV. There's tons of deals everywhere don't get desperate.
4. Build up your experience, after three deals in a year, you can go to any hard money lender and show them your track record and get 8% money all the time, and they’ll find your rehab to 80%.
5. Grow your rehab and real estate team. Keep improving your processes and talents of others. Stay humble and find ways to give back to your community. Do these things and you’ll do great!
Hey Jacob! I love the clear and concise advice. Thank you for that! The problem I am having is finding lenders that will allow me to get a conventional loan with no prepayment penalty. I would love to go that route if I could find one though. As you said I could put my 20%-25% down and then use the rest of my cash for the rehab. I just can't find any lenders that will give me a conventional loan for such a short period of time. If you have any national recommendations id greatly appreciate it!
I also love your advice about there being deals out there, I needed to hear that. I love all of these steps you brought out and I plan on following them. I guess I just need to keep trying to find a lender that will give me a conventional loan for such a short amount of time!
@Johnny L. the purchase price plus rehab is only 15-20K? You're unlikely to find any lender that will lend less than 50K whether you're brand new or the most experienced investor. Terms and extensions vary from lender to lender. Most have a term of 12 months but can extend from anywhere to 1 to 12 months (though 12 months is typically more for larger projects). I'm presuming when you say mortgage lenders you mean conventional as most hard money lenders won't have prepayment penalties.
I apologize Odie! I have enough cash to buy a home with cash and once the home is bought I will have $10k-$15k left over after the purchase. That makes sense that I won't find a lender to lend under $50k! Yes, exactly. The problem I am having with conventional lenders is a prepayment penalty and the problem with hard money is having no experience and them wanting to lend me too much money. Ideally I would like to go through a conventional lender who has no prepayment period but I can't seem to find one. So I felt as if im stuck between using credit cards or waiting another year or so to save up more cash to hopefully fund the whole rehab. Whats your advice?
I'm not sure what your purchase price is, but why aren't you just getting a loan for the purchase price plus rehab presuming it's more than 75K combined? That's the typical approach on rehabs
@Johnny L. Have you talked to any of your local community banks or credit unions? Sometimes they are a little more flexible than your larger banks. And as you grow, you'd probably want to look at opening some real estate investing lines of credit.
There is a great company doing this based out of Nevada called Seed Capital. They help to get you the cards, and transfer balances. Really neat concept, and so long as you are confident you can sell the property before the end of the interest free period, you should be absolutely fine!
@Odie Ayaga This guy is spot on. Hit on every lesson I learned on my first flip.. No guarantee you sell within 12 months. Paying cash for the house limits your from grabbing other deals. It will definitely cost more than you think on your first house. It also won’t sell for what you think on your first one.. Don’t get stretched thin!