Creative Financing! - Leveraging interest free Credit Card for Rehab
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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes@Jordan B. oh boy. Ok, so, let's start at the very beginning here - why didn't our lender provide us enough money to buy and rehab the property?
I'll guess at this - that either the lender didn't offer this type of a product (because we were working with an incorrect type of lender) or because "the numbers didn't make sense to do so"...which means it wasn't a good deal in the first place.
I don't mean to come down so hard on your deal but I do need us to reset a little bit here. I have certainly made my fair share of "mistakes" in real estate and am just fine. You will be fine here too but for every person who successfully borrows against credit cards in this way there are 99 that get into serious trouble.
Some things to consider when analyzing this type of a technique:
1. Negative Cash Flow - How will you pay back your credit card before the introductory offer runs out? Meaning, you will have your current mortgage payment and your current credit card payment...and no cash flow on your property because of these two payments. So, how will you pay back $50,000 before the 0% runs out? And you won't. Your credit card interest rate will inflate in the 20% range (more on that in a moment) and your payments will skyrocket. So, now we need to calculate our cashflow on year 2 to be EVEN MORE NEGATIVE than when we started. That's #1.
2. Your Credit Score - When you open a new trade line your credit score goes down. This is normal for all credit items. Once you have good payment history your credit score will rebound because they see that you can pay the new debt. This is factored into the formula on how your credit score is calculated. HOWEVER, you will then be MAXING OUT your account. This will significantly hit your score. And if you can't get the entire $50k on one card...now you have to open up multiple accounts, maxing out each one, and your credit score will get crushed. I have seen scores go down 100-150 points when people do this. Anything over 70% of the balance negatively impacts your score. Double whammy.
3. The Plan - so how do you overcome these issues? And that's what we need to plan for.
Again, don't mean to be so gloomy here...but if I know what moves will occur on the chessboard then I start to plan on countering them. And that's what we need to do here.
Hope all of this makes sense. Feel free to ask anything additional if you need.
15 Replies
- 2yAndrew PostellPro MemberLender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
@Jordan B. oh boy. Ok, so, let's start at the very beginning here - why didn't our lender provide us enough money to buy and rehab the property?
I'll guess at this - that either the lender didn't offer this type of a product (because we were working with an incorrect type of lender) or because "the numbers didn't make sense to do so"...which means it wasn't a good deal in the first place.
I don't mean to come down so hard on your deal but I do need us to reset a little bit here. I have certainly made my fair share of "mistakes" in real estate and am just fine. You will be fine here too but for every person who successfully borrows against credit cards in this way there are 99 that get into serious trouble.
Some things to consider when analyzing this type of a technique:
1. Negative Cash Flow - How will you pay back your credit card before the introductory offer runs out? Meaning, you will have your current mortgage payment and your current credit card payment...and no cash flow on your property because of these two payments. So, how will you pay back $50,000 before the 0% runs out? And you won't. Your credit card interest rate will inflate in the 20% range (more on that in a moment) and your payments will skyrocket. So, now we need to calculate our cashflow on year 2 to be EVEN MORE NEGATIVE than when we started. That's #1.
2. Your Credit Score - When you open a new trade line your credit score goes down. This is normal for all credit items. Once you have good payment history your credit score will rebound because they see that you can pay the new debt. This is factored into the formula on how your credit score is calculated. HOWEVER, you will then be MAXING OUT your account. This will significantly hit your score. And if you can't get the entire $50k on one card...now you have to open up multiple accounts, maxing out each one, and your credit score will get crushed. I have seen scores go down 100-150 points when people do this. Anything over 70% of the balance negatively impacts your score. Double whammy.
3. The Plan - so how do you overcome these issues? And that's what we need to plan for.
Again, don't mean to be so gloomy here...but if I know what moves will occur on the chessboard then I start to plan on countering them. And that's what we need to do here.
Hope all of this makes sense. Feel free to ask anything additional if you need.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes2y
Quote from @Jordan B.:
Hi All,
I recently purchased another rental property and planning the rehab now. I expect to pay around $40,000 to $50,000 in expenses. I wanted to creatively finance this and take advantage of any cash back/rewards. The interest free period is also a plus.
Has anyone done this? I am thinking about getting the Chase Premier Business Ink card.
- $1,000 cash back if $10,000 spent in 3 months
- Interest free for 1 year
- 2.5% total cash back on every purchase of $5,000 or more
- 2% unlimited cash back on all other purchases
- $195 annual fee but i plan to cancel after done using it. My cash back will outweigh the annual fee as well.
Is there a better card to consider? This seems to be best I found for my situation.I'm not sure that will work the way you hope it will. I looked that card up and the "no interest" is only if you pay the balance off in full every month. So they're not floating you a 12 month loan for $195. Anything that they let you carry they charge you a variable interest rate between 19-27%.
Assuming you could pay off every purchase in full every month to avoid the interest charge, you'd essentially be paying $195 to access about $800 of cash back rewards (at $40k worth of rehab) and the $1k cash back. It's not nothing, but I have a 2% cash back card with no fee at all (but not with the cash rebate). I assume you're going to get a tax statement on the CC for the $1k they give you as a rebate, so you'll have to carry it as income at tax time making it worth maybe $650-750.It's worthwhile to think about, certainly - just remember opening a new consumer credit card might ding your credit score somewhat, so you need to consider where that score is now and how fast you'll need to access a higher score.
Skyline Properties - Rental Property Investor · Conshohocken, PA · Member since 2014 · 58 posts · 26 votes2yHI Andrew,
Quote from @Andrew Postell:
@Jordan B. oh boy. Ok, so, let's start at the very beginning here - why didn't our lender provide us enough money to buy and rehab the property?
I'll guess at this - that either the lender didn't offer this type of a product (because we were working with an incorrect type of lender) or because "the numbers didn't make sense to do so"...which means it wasn't a good deal in the first place.
I don't mean to come down so hard on your deal but I do need us to reset a little bit here. I have certainly made my fair share of "mistakes" in real estate and am just fine. You will be fine here too but for every person who successfully borrows against credit cards in this way there are 99 that get into serious trouble.
Some things to consider when analyzing this type of a technique:
1. Negative Cash Flow - How will you pay back your credit card before the introductory offer runs out? Meaning, you will have your current mortgage payment and your current credit card payment...and no cash flow on your property because of these two payments. So, how will you pay back $50,000 before the 0% runs out? And you won't. Your credit card interest rate will inflate in the 20% range (more on that in a moment) and your payments will skyrocket. So, now we need to calculate our cashflow on year 2 to be EVEN MORE NEGATIVE than when we started. That's #1.
2. Your Credit Score - When you open a new trade line your credit score goes down. This is normal for all credit items. Once you have good payment history your credit score will rebound because they see that you can pay the new debt. This is factored into the formula on how your credit score is calculated. HOWEVER, you will then be MAXING OUT your account. This will significantly hit your score. And if you can't get the entire $50k on one card...now you have to open up multiple accounts, maxing out each one, and your credit score will get crushed. I have seen scores go down 100-150 points when people do this. Anything over 70% of the balance negatively impacts your score. Double whammy.
3. The Plan - so how do you overcome these issues? And that's what we need to plan for.
Again, don't mean to be so gloomy here...but if I know what moves will occur on the chessboard then I start to plan on countering them. And that's what we need to do here.
Hope all of this makes sense. Feel free to ask anything additional if you need.
I have more than enough in my HELOC. I just thought I would utilize a credit card for no interest and keep my HELOC money free.
The house I am working on should cash flow $1,000 per month after all expenses so I would use that to pay back credit card and my 9-5 job income. I would be able to pay off all rehqab costs before the credit card interest free period ends.
Im just looking for short term ways to avoid the HELOC interest. - Member since 2019 · 151 posts · 20 votes2y
Quote from @JD Martin:
Quote from @Jordan B.:
Hi All,
I recently purchased another rental property and planning the rehab now. I expect to pay around $40,000 to $50,000 in expenses. I wanted to creatively finance this and take advantage of any cash back/rewards. The interest free period is also a plus.
Has anyone done this? I am thinking about getting the Chase Premier Business Ink card.
- $1,000 cash back if $10,000 spent in 3 months
- Interest free for 1 year
- 2.5% total cash back on every purchase of $5,000 or more
- 2% unlimited cash back on all other purchases
- $195 annual fee but i plan to cancel after done using it. My cash back will outweigh the annual fee as well.
Is there a better card to consider? This seems to be best I found for my situation.I'm not sure that will work the way you hope it will. I looked that card up and the "no interest" is only if you pay the balance off in full every month. So they're not floating you a 12 month loan for $195. Anything that they let you carry they charge you a variable interest rate between 19-27%.
Assuming you could pay off every purchase in full every month to avoid the interest charge, you'd essentially be paying $195 to access about $800 of cash back rewards (at $40k worth of rehab) and the $1k cash back. It's not nothing, but I have a 2% cash back card with no fee at all (but not with the cash rebate). I assume you're going to get a tax statement on the CC for the $1k they give you as a rebate, so you'll have to carry it as income at tax time making it worth maybe $650-750.It's worthwhile to think about, certainly - just remember opening a new consumer credit card might ding your credit score somewhat, so you need to consider where that score is now and how fast you'll need to access a higher score.
which card do u have?
- Member since 2019 · 151 posts · 20 votes2y
Quote from @Jordan B.:
Hi All,
I recently purchased another rental property and planning the rehab now. I expect to pay around $40,000 to $50,000 in expenses. I wanted to creatively finance this and take advantage of any cash back/rewards. The interest free period is also a plus.
Has anyone done this? I am thinking about getting the Chase Premier Business Ink card.
- $1,000 cash back if $10,000 spent in 3 months
- Interest free for 1 year
- 2.5% total cash back on every purchase of $5,000 or more
- 2% unlimited cash back on all other purchases
- $195 annual fee but i plan to cancel after done using it. My cash back will outweigh the annual fee as well.
Is there a better card to consider? This seems to be best I found for my situation.go for it but keep in mind what @andrew said about the chessboard and your credit score if your gonna need it to be high for a new line in the near term go steady also if your trying to get approved for a bunch of different cards at the same time i believe the strategy is to apply all at the same time and keep in mind the chase 5/24 rule
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
This ended very badly for people 15 years ago when they couldn’t refinance because of drop in values and lack of available financing
7e investments53 Reviews - 2yAndrew PostellPro MemberLender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
Quote from @Jordan B.:
HI Andrew,Quote from @Andrew Postell:
@Jordan B. oh boy. Ok, so, let's start at the very beginning here - why didn't our lender provide us enough money to buy and rehab the property?
I'll guess at this - that either the lender didn't offer this type of a product (because we were working with an incorrect type of lender) or because "the numbers didn't make sense to do so"...which means it wasn't a good deal in the first place.
I don't mean to come down so hard on your deal but I do need us to reset a little bit here. I have certainly made my fair share of "mistakes" in real estate and am just fine. You will be fine here too but for every person who successfully borrows against credit cards in this way there are 99 that get into serious trouble.
Some things to consider when analyzing this type of a technique:
1. Negative Cash Flow - How will you pay back your credit card before the introductory offer runs out? Meaning, you will have your current mortgage payment and your current credit card payment...and no cash flow on your property because of these two payments. So, how will you pay back $50,000 before the 0% runs out? And you won't. Your credit card interest rate will inflate in the 20% range (more on that in a moment) and your payments will skyrocket. So, now we need to calculate our cashflow on year 2 to be EVEN MORE NEGATIVE than when we started. That's #1.
2. Your Credit Score - When you open a new trade line your credit score goes down. This is normal for all credit items. Once you have good payment history your credit score will rebound because they see that you can pay the new debt. This is factored into the formula on how your credit score is calculated. HOWEVER, you will then be MAXING OUT your account. This will significantly hit your score. And if you can't get the entire $50k on one card...now you have to open up multiple accounts, maxing out each one, and your credit score will get crushed. I have seen scores go down 100-150 points when people do this. Anything over 70% of the balance negatively impacts your score. Double whammy.
3. The Plan - so how do you overcome these issues? And that's what we need to plan for.
Again, don't mean to be so gloomy here...but if I know what moves will occur on the chessboard then I start to plan on countering them. And that's what we need to do here.
Hope all of this makes sense. Feel free to ask anything additional if you need.
I have more than enough in my HELOC. I just thought I would utilize a credit card for no interest and keep my HELOC money free.
The house I am working on should cash flow $1,000 per month after all expenses so I would use that to pay back credit card and my 9-5 job income. I would be able to pay off all rehqab costs before the credit card interest free period ends.
Im just looking for short term ways to avoid the HELOC interest.You purchased the property entirely in cash?
- Rental Property Investor · Conshohocken, PA · Member since 2014 · 58 posts · 26 votes2y
Quote from @Andrew Postell:
Quote from @Jordan B.:
HI Andrew,Quote from @Andrew Postell:
@Jordan B. oh boy. Ok, so, let's start at the very beginning here - why didn't our lender provide us enough money to buy and rehab the property?
I'll guess at this - that either the lender didn't offer this type of a product (because we were working with an incorrect type of lender) or because "the numbers didn't make sense to do so"...which means it wasn't a good deal in the first place.
I don't mean to come down so hard on your deal but I do need us to reset a little bit here. I have certainly made my fair share of "mistakes" in real estate and am just fine. You will be fine here too but for every person who successfully borrows against credit cards in this way there are 99 that get into serious trouble.
Some things to consider when analyzing this type of a technique:
1. Negative Cash Flow - How will you pay back your credit card before the introductory offer runs out? Meaning, you will have your current mortgage payment and your current credit card payment...and no cash flow on your property because of these two payments. So, how will you pay back $50,000 before the 0% runs out? And you won't. Your credit card interest rate will inflate in the 20% range (more on that in a moment) and your payments will skyrocket. So, now we need to calculate our cashflow on year 2 to be EVEN MORE NEGATIVE than when we started. That's #1.
2. Your Credit Score - When you open a new trade line your credit score goes down. This is normal for all credit items. Once you have good payment history your credit score will rebound because they see that you can pay the new debt. This is factored into the formula on how your credit score is calculated. HOWEVER, you will then be MAXING OUT your account. This will significantly hit your score. And if you can't get the entire $50k on one card...now you have to open up multiple accounts, maxing out each one, and your credit score will get crushed. I have seen scores go down 100-150 points when people do this. Anything over 70% of the balance negatively impacts your score. Double whammy.
3. The Plan - so how do you overcome these issues? And that's what we need to plan for.
Again, don't mean to be so gloomy here...but if I know what moves will occur on the chessboard then I start to plan on countering them. And that's what we need to do here.
Hope all of this makes sense. Feel free to ask anything additional if you need.
I have more than enough in my HELOC. I just thought I would utilize a credit card for no interest and keep my HELOC money free.
The house I am working on should cash flow $1,000 per month after all expenses so I would use that to pay back credit card and my 9-5 job income. I would be able to pay off all rehqab costs before the credit card interest free period ends.
Im just looking for short term ways to avoid the HELOC interest.You purchased the property entirely in cash?
No, I mortaged it with 25% down. Monthly mortgage including taxes and insurance is $1300. Rent will be $2,300.
I have 3 other properties that cash flow between $800 to $1,000 a month and income is pretty decent to where i feel pretty safe.
I did move forward and applied for the Discover card and regret it. With 828 credit score and little debt to income, i was only approved for $10,000 credit limit. How dissappointing.
- Lender · Fort Lauderdale, FL (Lending in FL CT GA MI PA) · Member since 2022 · 470 posts · 349 votes2y
Unfortunately Discover can be stingy with credit line size. Nothing wrong with using credit card sign up bonuses and cash back for a rehab if you have the actual cash to pay it off. The biggest worry to me is Andrews point 2. If someone is doing a BRRRR and posts a high utilization on their cards the credit score will drop and make a refi difficult. Make sure to pay the card down before the closing date, if it reports with a max balance it will affect your credit even if you pay it all off the next day.
- Rental Property Investor · Conshohocken, PA · Member since 2014 · 58 posts · 26 votes2y
Quote from @Ash Hegde:
Unfortunately Discover can be stingy with credit line size. Nothing wrong with using credit card sign up bonuses and cash back for a rehab if you have the actual cash to pay it off. The biggest worry to me is Andrews point 2. If someone is doing a BRRRR and posts a high utilization on their cards the credit score will drop and make a refi difficult. Make sure to pay the card down before the closing date, if it reports with a max balance it will affect your credit even if you pay it all off the next day.
Great point Ash and something i will definately do.
Last rehab i did i kept my cash on hand as a safety net and used the Chase Freedom card with 15 momths interest free to finance my rehab costs. At the end of the project i paid it all off.
Just to let everyone know, when i purchased my last property my credit score was around 820. I applied for the credit card and maxed it out and carried a $29,000 credit balance on a $30,000 credit limit for a couple months. Once the project was done i paid it off. By carrying that credit balance, my score dropped to 740. Once i paid it all off in full, it jumped back up to 790 in about a month or two IIRC.
- 2yAndrew PostellPro MemberLender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
@Jordan B. I just feel that this is really risky especially since there are loan options that will allow rehab costs included. Hopefully, it will continue to work out for you.
- Investor · Pawleys Island, SC · Member since 2015 · 324 posts · 385 votes2y
It's risky of course, but I've done it. If you look at my old posts, I have one about my Romaine house purchase, rehab, and refi.
It worked out, but I understood the risk going in. It about my 6th or 7th property at that point and I had a good relationship with my lender.
- Rental Property Investor · Conshohocken, PA · Member since 2014 · 58 posts · 26 votes2yNo risk no reward
Quote from @Anna Buffkin:
It's risky of course, but I've done it. If you look at my old posts, I have one about my Romaine house purchase, rehab, and refi.
It worked out, but I understood the risk going in. It about my 6th or 7th property at that point and I had a good relationship with my lender.
I would definately not do this if it was my first or second propert as well. - Rental Property Investor · Conshohocken, PA · Member since 2014 · 58 posts · 26 votes2y
Quote from @Andrew Postell:
@Jordan B. I just feel that this is really risky especially since there are loan options that will allow rehab costs included. Hopefully, it will continue to work out for you.
I understand the risk and definately calculate it before taking. I find it better for my situation to save up the money to buy and flip the property but in the end, use as little of the money saved to execute. I d rather leverage an interest free card and keep my cash on hand as a safety net. At the end of the project, i pay off the balance with the cash on hand.
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes2y
Quote from @Jordan B.:
Quote from @Andrew Postell:
@Jordan B. I just feel that this is really risky especially since there are loan options that will allow rehab costs included. Hopefully, it will continue to work out for you.
I understand the risk and definately calculate it before taking. I find it better for my situation to save up the money to buy and flip the property but in the end, use as little of the money saved to execute. I d rather leverage an interest free card and keep my cash on hand as a safety net. At the end of the project, i pay off the balance with the cash on hand.
I've bought 2 houses with credit cards, but this was back when I was buying houses for $25k, I had plenty of cash flow from rentals and a good W2, and interest rates were low and I had a lot of projects going at once and was just short on cash but didn't want to pass up a good deal. Both of them were no fee, no interest, one was 18 months and one was 23 months I believe. I ended up rehabbing both and then traditional financing them later. Today I'm not sure there are any no fee/no interest cards, especially for new clients. I've seen no interest for 15 months with a 3% fee, which is pretty good - effectively about 2.5% interest over 15 months - but with the fed rate up where it is I don't see what incentive any credit card companies have to give out no fee/no interest cards right now.
Skyline Properties
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