should I use personal credit cards for rehab?

Question

Hello.

My plan is to start rehabbing in Texas and then acquire some SFR rentals and hopefully some multifamily.

I've decided against forming an LLC at this point because I have yet to do a deal and the only assets I have are my home which is homesteaded and a car with 100,000 miles and some serious hail damage. I have every intention of eventually doing REI full-time but I will NOT quit my day job until it's a realistic possibility.

I would like to start an LLC and start to build business credit but since I haven't done a deal it seems like a waste of money until I know I can do this.

I am going to file for an Assumed Name(DBA) with the County and open a business checking account for the $10K-$15K startup capital I have and also obtain a EIN so I don't have to use my SS#.

My question:

Is it okay to use my personal credit cards to cover rehab cost that will be reimbursed by my HML?

As a sole proprietor do I face any issues Doing Business As "newbie321" and then using MY personal credit? ( I think the answer is no since it all flows through to personal taxes anyway)

The reason I want to use personal cards is because I have good credit score(771), $27,000 worth of credit divided up over 3 cards all with ZERO balances and I don't want to give a personal guarantee for a new business credit card and harm my personal credit.

Any comments or suggestions are always appreciated. CHEERS :beer:

Bill Gulley · Answer

Watch those cards carrying a balance, no interest for 6 months or a year. If the entire balance is not paid off within that term, the loan accrues interest from day one and if a dollar remains after the term, the entire accrual from day one is added to the balance! So, if you paid it all off except for $50.00 and over that term at 18-29% $800 of interest accrued, you'll have a bill for $850.00! Maybe not all cards, but lowes does that and many others, watch'em! Bill

Account Closed · Answer

You new DBA won't be able to get any credit until it is very well established, and even then you will have to sign personally for the debt. When yo get an LLC, you ust very carefully separate your private finances from your LLC finnaces, or eles you lose the protection of the LLC. You might need to make loans to your DBA,. Check with your accountant to see how it works in your state. I use my credit card for rehabs. If you have good credit, your card rate should be as low or lower than you'd pay to borrow money anywhere else. There is no loan processing fee for credit card money. My card is 8.5%. I can't get a home improvement loan, or line of credit, for less, and that would have application and processig fees, and usually involves an appraisal. Just don't be using that credit card unless you know where the money is coming from to pay it back real quick.

Bill Gulley · Answer

I love my credit cards! Especially for rehab. Why, I get an itemized statement of each purchase with my receipts, my personal purchase is "transferred" to my LLC, asset to LLC in materials, liabilty of my LLC to me, same as if I loaned my LLC money. It's a wash. I suggest you begin with an LLC, can't be that much different in the DBA filings. As outlined above for accounting, you don't need credit in your LLC on day one. Your LLC needs a checking account. You can use your credit card and write a check out of your LLC to you and pay your CC bill (the LLC can pay the bill as well, but this is a better audit trail) Credit cards are free money! If you pay them off when due. You might try to open a commercial card at Lowes in the name of your LLC with a personal guarantee, that can get you started. Bill

Frank Adams · Answer

Learn as much as possible about how to do each job, plan the jobs so you're doing them in some sort of logical sequence, and remember this; EVERYTHING TAKES LONGER THAN YOU THINK, AND COSTS MORE THAN YOU BUDGETED. all cash

Steven Horvath · Answer

I did my first SFR rehab with my credit card, my only deal so far. it worked i guess, i got the rehab done. I am having a hard time paying the cc back but its getting there. Also my credit score took a hit, make sure to keep your balances under the 40-50 percent mark or your scores will get hurt to.

Eddie Ziv · Answer

I did one rehab using Home Depot card and Wells Fargo Home Project Visa. I used around $9,000 of it for the rehab, Both cards carried no interest for 12 months but 21% beyond that period. However, it was a buy-n-hold property and the house was rented two weeks after the rehab was completed. My rent is $685 so I figured by the time the year is up, I'll have a small balance to pay off.

Deon C. · Answer

Using credit cards can be risky, for if you fail on your real estate projects your scores will surely tank. Try setting up an LLC and establishing corporate credit. That way if the project fails debtors will come after the LLC and not you personally. Also make sure to arrange any loans given to LLC not in the form of a personal guarantee.

David Heath · Answer

If its a short term strategy then yes, but if you think it'll take you a while to repay the money then you should try other methods, reason being, credit card debt builds up pretty quickly compared to a loan or other forms of financing.

Adam Stone-dare · Answer

Thanks for the advice. It's always appreciated when veterans take the time to educate us newbies. :beer: :beer: :beer: :beer: :beer: :beer: :beer: :beer: :beer: :beer:

Frank Adams · Answer

It wouldn't be my preferred way, but as long as you can walk the debt or pay it off quickly enough, it'll be OK. Have you done rehabs in TX before? Rehabs anywhere? all cash