Paying Off A Property On A Credit Card

[Duane Hundley]

I purchased a property back in Aug using a credit card with 0% interest for 12 months with 4% trans fee. A little about the property:

it was a total amount $25,400, 

Rent: $500

Expenses: $40 per month

Paying: $460 per month current towards credit card

I have another credit card already with my credit union that's 7.99% and my plan was to roll it over to it around Oct 2017. I was also planning to start paying extra on the property using my own cash flow starting in Jan from $500-$700 extra per month.  This would put my balance around $13,960 at paying the $500 extra from Jan until Oct. After moving it to the other card for a few months I most likely could roll it back to my 0% card and get a promo rate for 0% again. I thought about then just paying the $460 a month for around two years and that would pay the property off.

While doing this I won't have much money to put aside for other deals, but once it's paid off I should be able to fund another deal pretty quick, I want to get two more properties for total of 4. What are your thoughts or what would you do different? I could pay it off before Oct of 2017 and pay no interest at all, but I won't be able to do any other investing. I also want to add a close family member lives in the property.

Thanks,

Duane

[John Burtle]

How did you purchase a property with a credit card? Sorry, never heard of it. Just trying to learn as much as I can.

[Duane Hundley]

Used available credit as proof of funds and transferred the cash into your bank account prior to closing. I only done it avoid 20% down payment.

[Shawn Ackerman]

@Duane Hundley i think this is an excellent strategy when considering risk/reward.  Let's talk a little about the first property you purchased for 25K.  So you have 12 months to do a cash out refi on the property, that's great.  What is the monthly minimum CC payment at 0%? Also the expenses on the property are super low...did you purchase a mobile home?  @John Burtle this strategy is used all of the time with Cc's that offer 0% interest balance transfer checks. You can transfer the money in many instances directly into your checking account. There are pitfalls that you need to avoid in this strategy as it is not an alternative to long term lender financing however should be used as one would use a HML>

[Duane Hundley]

Around $250 and it's not a doublewide. I will plan to put towards repairs after the refi or I decide how to proceed. I'm thinking of just getting a home equity loan on the property for around $20k on a 7 to 10 year term.

[James Elston]

Originally posted by @Duane Hundley:

Used available credit as proof of funds and transferred the cash into your bank account prior to closing. I only done it avoid 20% down payment.

 Please explain.

[Duane Hundley]

In my area some properties sell for under $25k that need repairs. If you have a credit card with high enough balance, you can do a bank transfer into a checking account. If the seller requires a poof of funds letter just summit an account statement with available funds. 

[Christopher Phillips]

@Duane Hundley

Not a bad alternative since properties under $50K are hard to get a loan on. But, it has risks. If for some reason the rehab gets hung up and you can't get it rented right away, you have to be prepared to eat the monthly payments. 

If you can't refinance it, then the cash flow needs to be good enough to cover expenses and the 22% interest.

How are the taxes on the property? You mentioned that the expenses are only $40 per month...

[Duane Hundley]

Originally posted by @Christopher Phillips:

@Duane Hundley

Not a bad alternative since properties under $50K are hard to get a loan on. But, it has risks. If for some reason the rehab gets hung up and you can't get it rented right away, you have to be prepared to eat the monthly payments. 

If you can't refinance it, then the cash flow needs to be good enough to cover expenses and the 22% interest.

How are the taxes on the property? You mentioned that the expenses are only $40 per month...

 Well I used a 0% transfer for 18 months so this gives you time to pay down the property, get it repaired, rented, and arrange financing if you choose to do so. If you have good credit my plan is to move it to a credit union credit card at 7.99%. 

The property I purchased taxes and insurance run $550 a year. It's rented for $500 a month. 

[Christopher Phillips]

@Duane Hundley

Sounds great with taxes so cheap.

Are you rehabbing it yourself?

[Duane Hundley]

Originally posted by @Christopher Phillips:

@Duane Hundley

Sounds great with taxes so cheap.

Are you rehabbing it yourself?

 Needed little repairs. Under $1,000 in C area. 

[Christopher Phillips]

@Duane Hundley

And what is your minimum monthly payment like now?

[Duane Hundley]

last month was $259, goes down monthly. I'm currently not taking a profit and paying $460 per month. 

[Dan Mahoney]

@Duane Hundley, it sounds like you have a handle on how the promo rates work and the risks involved (most notably that if your promo rate expires and you can't move the balance, you'll up paying high interest rates).  There are other benefits to this strategy, most notably that credit cards are unsecured debt so it is way harder (but not impossible) for the creditors to take the property from you compared to a mortgage.  It sounds ike you've found a creative financing approach that works for you.

For the other readers, I would like to add a caution based on how credit card companies look at your credit report.  Let's assume that you have a good credit score because you have more than 10 years credit experience and you have always paid your bills on time.  When evaluating a new application or reviewing an existing account, banks love to see big credit lines from competitors with zero (or small) outstanding balances.  If Amex sees fit to give you $30k credit lines, this makes it more likely that Chase or Barclays will want to compete and match or exceed your limits at Amex.  However, if you have one or more $30k credit lines maxed out, this will be concerning to a bank and they may either deny you or shrink your credit line.

The upshot is that promo rates are great for short term financing, but a long term strategy to roll from one account to the other will eventually catch up with you because the banks will get nervous and close the safe.  The interest rate math is compelling but you can't assume credit availability will last forever.

As ever, it is easiest to get financing when you don't need it and hardest when you do.

[Christopher Phillips]

@Duane Hundley

Sounds like you got it in the right direction. One solution would be to find a private lender/partner that will refinance you out of the credit card debt. This would give you a secure rate going forward and free you up to buy another property.

[Steve Vaughan]

I've used many a credit card check as DPs on seller-financed plexes until about '07.

Then my 0% promo rate turned into a 30% penalty rate on a $17k balance one day out of the blue. The card co randomly checked my credit and decided I had too much credit outstanding.  Never once was I late.

Utilize this wisely and have a plan b. I haven't had a cc since 2011 and don't miss em' a bit. Cheers!

[Duane Hundley]

awesome! I'll have cash to pay off the property in 6 months. 

[Dan Mahoney]

@Steve Vaughan, yes this exactly.  Credit card promo rates are great to finance anything for short term but will come back to bite you if you let it ride for too long.