What do you think about credit card rehabbing?

Question

What does everyone think about using credit cards to start for cash/ rehabbing/ down payment money for a first time startup. Im new and I know I have a lot to learn, but am just curious about picking peoples brains in this area. Has anyone done this? In short, I have a mentor who is basically going to help me find a great deal where my rehab/cost of property will be below 50%. I then would refinance to take the equity and pay off my credit card and since I have such low rates would actually be cheaper than paying back some investors. This then would give me a decent amount of money to put down for my next rehab project.

Tyler Carpenter · Answer

I would sell my car, but with the way these specialty cars are selling, I would actually lose thousands of dollars, and with me being so young and paying on time, my banker says its helping raise my credit score..Plus I actually have many investors that I am in the works of setting up which will help me get started, so Im good to go.

Tom NA · Answer

I would say if that's your car in the picture, perhaps selling it and getting something a bit more spartan would also go a long way toward improving your "proven liquidity".  If you want to be successful, in my opinion you need to take what may sometimes feel like painful steps in order to do so and that may include a change in lifestyle.

Tyler Carpenter · Answer

No worries about getting off topic. I have since decided to focus all of my energy in gaining more investors instead of using credit cards for the main down payment and has been working out well. Im close to about half of the money I need for "proven liquidity."

Account Closed · Answer

Ryan, 
            I have done one conventional loan in the past year. There are a couple reasons why people arent doing conventional loans
            1.  Declning markets... Many areas are considered declining markets which drops the allowable LTV and makes it more difficlut to obtain PMI companies to insure
            
            2. Interest rates.... There is a huge jump to pricing if the borrower has a credit score lower than 720 or an LTV over 80%.   And lets face it, in todays housing market not many people have a 20% down payment.   
            
            3. Lower monthly mortgage insurance when using FHA.
            
            ---I priced out a loan yesterday for a gentleman who qualifited for both FHA and conventional.  The rate for FHA 30 year fixed was 5.5% compared to a 6.625% conventional.

I apologize for getting off topic or credit card financing. I just get carried away sometimes

Jon Holdman · Answer

No offense taken at all.  The lending environment seems to be getting worse and worse.  I'm hearing its harder to get a takeout loan for hard money loans, too, and even for those seasoning may be required.

Ryan Webber · Answer

I need to eat some crow with my "most" comment in reference to FHA loans.

I do about a dozen rehab to retails a year and the last one I sold was was via a conventional loan but it was almost two months ago, so my current interaction with retail is not as up to date as some other investors.

After I made my post I contacted a friend of mine who does 4 or 5 times the rehabs to retails I do, and he hasn't sold a house on a conventional loan in 2 months.  He does mostly lower end but all of them have been FHA recently which is not normal.

So with this added information I would lean more towards "most" loans being FHA right now and less towards "many" of them being FHA.

Account Closed · Answer

Another idea is to check to see if the home is in a USDA rural elibigle location.  These are no money down programs

Ryan Webber · Answer

I think that no matter what your mentor says you need to go check out your cash out refinance options NOW.  Don't wait until you need it.  Get some definites from a mortgage broker and a local banker on the what they are offering on their cash out refinances.  I would look to get pre-qualified now, and find out what their FICO score requirements are just in case you take a hit with your credit card strategy.

I would disagree that "most" potential buyers right now will be using FHA but "many" is an adjective I would be comfortable with.  Understanding the seasoning requirements on a refinance and a resell are essential for you to not get stuck with the house longer than you are expecting.

If a buyer is using an FHA loan, there is a 3 month prohibited flipping time and within 6 months a second appraisal is required.

Steve L. · Answer

Tyler - you may consider flipping a couple deals.  If you can buy and fix at 50% of market value, you could sell it on the cheap... get you're borrowed money back and 40-50k of working capital (in your example).

Remember to factor in interest cost, your time involved, and overages.

Good luck!

Account Closed · Answer

as a mortgage broker I would like to make you aware of the diffuculties of obtaining cash out refinances on non owner occupied properties.  As of right now there are very few, if any, lenders that are lending money on cash out investment properties.   Not to mention with little seasoning.  Things have changed so much over tha past couple months that much of the finance advice you will get on here might be a little out dated.  No offense to Jon Holman as the number of posts speaks for itself.  Many of the lenders will also even go further than the 6-12 months of seasoning if you are trying for a much higer value than your purchasee price.  Also be aware that if you are trying to flip and sell there is a 6month flipping rule for FHA mortgages.  Most potential buyers will be qualifying for an FHA purchase becuasee they are the easiest to obtain right now.