Ever thought about buying an investment property with a credit card? Or wondered if you qualify for unsecured business credit lines as a real estate investor?
Deni & Brian talk through some of the risks and rewards of using credit cards for real estate investing.
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Brian: Brian Davis and Denise Supplee here from Spark Rental.
Deni: Hi everyone and welcome. Welcome to our weekly broadcast and podcast. I always forget that. So last week we spoke to Janet Fields, and we talked about property management, got some tips and whatnot.
Brian: Haunted properties.
Deni: That kind of creeped me out for a little while after. This week and it’s interesting to see some of the social media reactions we got on this topic, but this week we’re going to discuss buying real estate with credit cards. It’s possible Brian did it and a little bit about how to get creative with credit cards, because we often look at credit cards as terrible, but there are good things if they’re used correctly. So, with that, Brian, why don’t you discuss? And then we’re going to we have a webinar coming tomorrow that’s going to be amazing and we’ll get into that a little bit later Brian will talk about that. But go-ahead Brian Let’s talk about, you know, the differences between credit lines and HELOCs. That was one of the questions I saw come up.
Brian: Sure. So, yeah, I mean, we actually did last month’s webinar all about creative financing. And we’re taking that a step further, or at least diving deeper into one of these angles tomorrow in this month’s webinar about how to use unsecured business credit cards and credit lines to invest in real estate. So, we’re bringing in a partner to talk to you about how that works and some of the best practices. But so today we’re talking we’re going an overview of that, and we’ll talk about some of the different kinds of credit lines. So, you have HELOCs, which a lot of people are familiar with. Those are home equity lines of credit. They are secured against a piece of property. Whether that is your home, which is the traditional way of doing HELOCs or whether it’s a rental property, a lot of people don’t realize that you can open HELOCs against rental properties and investment properties. You also have unsecured business lines of credit. Those are not attached to a property. They’re not secured with a lean against a property, but they work just like HELOCs. The interest rate tends to be a little higher because they are unsecured, right? And all credit is priced based on risk. And then you also have business credit cards which are also unsecured. They’re not secure with a lien against real property. And you can use all three of these types of rotating credit or revolving credit. As a real estate investor, you can use them to put towards a down payment on a property. You can use them towards renovation costs for a property. You can use them to buy properties outright if you’re buying properties that are cheap enough or if you have enough credit lines. So as Deni said, I have actually I did buy a property with a credit card once or with a couple of credit cards.
Brian: It was a very cheap property, and it was an experiment. It was a learning experience, but it worked. You know, it was a combination of putting the material costs directly on the credit card. So, in doing that, I did not have any cash advance fees. There were no upfront fees associated with that. I could just swipe the card to put the material costs for the renovation on there, for the money to actually buy the property. I did take a cash advance, which varies by card, usually in the 3 to 5% range, although there are services out there. And this is something we’ll get into more tomorrow on the webinar. But there are services out there that will actually send money to the recipient of your choice, including title companies, and they charge a fee that is less than credit card cash advance fees. You’re normally looking at like two and a half percent, maybe 2.75% less than that three, four, 5% that you’re going to pay to the credit card company in cash advance fees. And often those fees like that, two and a half or 2.75% fee that you pay for this is less than you would pay in points and junk fees to a mortgage lender. Most mortgage lenders for rental properties, they charge at least two points, usually more like three or four. And then they hit you with all the junk fees, which are those flat fees that they just make up to make more money on the loans? Right. Things like.
Deni: It’s interesting, people, you don’t realize, you know, you think, oh, credit cards, no, look at all those fees, but you’re paying fees anyway.
Brian: Right. So flat fees include like administrative fee and processing fee, and you know, doc stamp fee and document preparation fee and, you know, all kinds of just junk. I mean, they’re just making them up to charge you more money on, on the loans. Now interest rates are going to be higher for unsecured businesses. Credit cards, credit lines, they’re going to be higher than you would pay to a mortgage. So it usually only makes sense to do this for either low-cost properties that you can pay off the card really quickly or if you have some exit strategy in mind, like flipping or like the burr method where you’re only going to be holding the property with this initial financing for a few months, three months, six months, whatever, while you do the renovations. But you don’t want to be holding this debt long-term, obviously, right? With unsecured business credit lines, credit cards, or credit lines, you’re talking about paying anywhere from 8 to 26% in interest, which is fine for a few months. It’s not going to kill you for a few months, but if that’s measured in years, then you’re in trouble.
Brian: Yeah, for short-term financing, like for flips or the or the Burr method where you buy a fixer-upper and then refinance it to keep it as a long-term rental. Yeah, for those it’s much more about the fees that you pay than about the interest rate since you’re only holding the financing for a few months.
Deni: So, anybody here, if you’ve ever done anything like this, use credit cards, let us know in the comments. And, you know, how did it work out? You know, is this something you would even consider? Just curious to see what everybody’s reactions to this are. And Brian, let’s talk about the webinar because I think it’s really exciting and it’s a new concept. So, what’s happening with that tomorrow?
Brian: Well, so we are partnering with a company called Fund and Grow or I say partner. We have been partnered with a company called Fund and Grow for a few years now. And we’ve done we try to do a webinar with them once a year because it’s such a novel service that they offer. What they do is they help you open unsecured business credit lines and credit cards as a real estate investor. So, they are familiar. They have relationships with all of the main business credit card issuers and credit line issuers. They negotiate on your behalf for higher credit limits, and they do this in three rounds of fundraising over the course of a year. I say fundraising, meaning they go out and they open these new lines of credit for you or new credit cards for you. And in between each round of fundraising, they scrub your credit to remove inquiries from your credit report. And they help you look for errors in your credit report and clean up your credit report.
Deni: So, you can raise your credit score with others along with other benefits?
Brian: Yeah. Yeah. That’s part of the service that they offer. And they also they keep tabs on all of the 0% APR introductory financing offers. So, they’ll open the accounts for you with the best of those offers at any given moment so you can get your first 6, 12, 18 months of credit for free, with no interest. And if you are carrying other debts that you want to move over to that card, you can do a balance transfer to transfer. Let’s say you have a 5000 existing credit card balance that you’re paying 20% interest on. You can move that over to one of these new cards for that introductory 0% period while you pay it off and knock it out. So, yeah, no, they’re a great company. And so, the webinar tomorrow, they’re going to walk you through exactly how to use these unsecured business credit lines and credit cards as a real estate investor. And, you know, one of the things, Danny, that we didn’t talk about yet but that we should is how credit card rewards can also offset the cost to the fee, the upfront fee to use to put real estate on a credit card. Because often you can get, you know, one and a half to two and a half percent, sometimes even more in reward points.
Deni: Which is crazy. I mean, that’s. I mean, I’m going to be honest here. I’m real transparent. Brian was just showing me about this, and my husband and I have started to implement it in some areas of our lives. And you don’t realize that if done properly, it’s quite a good benefit for travel.
Brian: Yeah, I mean, you can score free flights all over the world with your credit card points. And depending on how you spend those points, you know, you can earn more than that classic one and a half, 2% that is advertised. I mean, sometimes you can earn as much as $0.06 on the dollar for those credit card rewards, or even more if you use the rewards wisely, such as transferring the points directly to an airline and booking that flight through the airline points. So, you can get creative with that. And that can more than offset the costs that two and a half or 2.75% costs that companies charge to move money from your credit card to real estate or to the equivalent of a cash advance and avoid that cash advance fee, that credit card charge if you go through them.
Deni: So, Tim Dooley commented that he’s looking forward to the webinar. We’re looking forward to seeing you Tim.
Brian: Absolutely. As always, Tim. It’s always a pleasure. Tim is regular if you guys aren’t familiar with Tim.
Deni: And we’re very appreciative to have him.
Brian: Yeah. So, credit cards can be a super useful tool as a real estate investor. You just have to be careful not to carry a balance with them for the long term because as you know, if you’ve ever read any personal finance articles about credit cards, you know that there’s super high interest if you carry a balance. And that’s how you can dig yourself into a hole. And, you know, we had I had a guy email me earlier today talking about how he’s intrigued by the idea of using credit cards to pay for real estate. But he expressed concern about overleverage. And that is a valid concern when you’re talking about putting the down payment also on credit, right. Like borrowing the down payment in addition to the full mortgage. You know, in some ways, the down payment protects you, potentially protects you from negative cash flow from getting upside down on your mortgage. So, by the way, Deni, just put a couple of links.
Deni: For some reason they doubled. So, pardon me for that. Right.
Brian: So, we put some links here in the comments. For one, the first link is for the 2 p.m. Eastern webinar tomorrow. We’re also doing an encore webinar at 8 p.m. So, there’s a separate link for the 8 p.m. Eastern webinar as well. So just make sign up for whichever one you can make. And yeah. Deni, any other thoughts about using credit cards or business credit lines for real estate investing?
Deni: Well, I think even if you don’t use it to buy real estate, you certainly can use it. And I think you went over this a little bit earlier, but all the supplies, appliances, I mean, sometimes certain credit card companies will give extra points if you go to certain stores like Lowe’s or whatnot. Keep an eye on stuff like that. And if I mean, if you’re diligent at this, you’d be surprised. I was checking into it and it’s like you’d be surprised what you can get out of this.
Brian: Yeah. And you know, just to double down on that for a second. So, using your credit cards to pay for materials when you’re renovating a property. So not only do you not pay any kind of cash advance fee upfront for that, you get the reward points. Right. And that is something that I’ve used before to negotiate with contractors where contractors love to pad their material expenses, right, when they give you a quote. So, one of the things that I like to do when I’m negotiating with contractors for a job is I’ll say, okay, we’ll give me a quote for labor only, you know, just for labor and that way and tell them, I will put the materials, I’ll pay for the materials myself. Just give me a quote for the labor. And that way they can’t pad those material numbers. I mean, contractors can always do things like putting things in the cart that they are planning to use on other jobs. It’s not foolproof, but if you’re working with reasonably honest contractors, it’s just one more way to keep some clarity with your renovation expenses and you get the reward points. All right, Deni, any other thoughts that you want to add before we wrap up today? Talking about credit cards, credit lines for real estate investing?
Deni: No, I think that you covered it all. I think that you’ll learn more on the webinar.
Brian: So, join us tomorrow. Fund and grow want to show you how to open between 50,000 and $250,000 in unsecured business credit as a real estate investor. We’ll see you tomorrow at 2 p.m. Eastern or 8 p.m. Eastern, depending on what’s best for you.
Deni: Absolutely. See you next week, guys, and have fun at that webinar. We’ll see you then.
Brian: Bye-bye now.