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Real Estate Finance by Using Credit Cards to Buy Property |
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Category: Finance and Credit Current Grade: A+ Total Views: 2273 Member Comments: 0 |
Posted on: 06/13/2009 Posted by: Colin Blog Points: 6857 View all blogs >> |
Although it seems like the worst sort of business real estate finance decision to use credit cards in the practice of real estate investing, it’s actually quite the opposite, as long as you use that credit responsibly and smartly. These days it can be a little difficult to get credit cards, with the debt crisis. Plus, to really take advantage of the gains you can make in real estate finance with them you’ll need to have a good credit score.
Most people average a credit score of about 600 if they lead an establish life, pay all their bills on time and have some credit history. If you work at it and even have a high credit limit to debt ratio you can get a score of around 700 to 750. It’s possible according to the system to get a score of up to 800 but those ratings are few and far between.
In real estate investing with credit cards, your credit score is important because it can affect the kinds of offers you get with your new credit cards and how high your interest rate can be.
In real estate finance with credit cards it’s quite important to pay attention to the interest rate on your credit cards. Those high interest rates can really eat into your profits as an investor.
A Strategy of Profiting from Credit Cards
The first known reference to the real estate investing strategy of Profiting from Credit Cards (PFCC) occurred in the June 23rd, 2007 issue of The Wall Street Journal. This practice involves applying for as many different credit cards as possible at the same time. Ideally, you’ll apply for the cards with the biggest and best bonuses to help cover the cost of those interest fees.
You’ll be using these cards to pay for houses and property, so it’s best to seek out the ones with the highest credit limits. Hence, the importance of your credit scores. The higher your score, the more likely you are to get a high limit.
The practice of real estate finance with PFCC is also very dependent on that interest rate. Since investors like to pick up property and flip it quickly, those cards with special zero percent introductory rates are great to apply for.
This way you can use say five cards with zero percent interest rates to purchase a property at a discount. Then, you can sell that property within a few months at a higher price and pay off the cards without having to pay any interest on your short term loan. Make sure you don’t go over the credit limit on those cards and never miss a payment while holding that property though, or the interest rate shoots right up.
Plus, you’ll have to do all of this before the introductory zero percent interest period ends. Some are three months to six months long though and in that time you can get a couple of different real estate finance properties bought and sold.
Then there are all those great bonuses you can get for opening up a credit card account. Some credit companies offer up to five percent cash back on all purchases. Considering the price of real estate that’s quite the additional discount on your purchase. Assuming you go to a Sheriff’s Auction and purchase a house using your credit cards for $50,000, you’ll get $2,500 back from that purchase. Just for using a credit card instead of cash or a property loan.
Along with a zero percent introductory rate, that’s quite the deal.
Of course there are other bonuses too. In real estate investing you may end up travelling a lot to buy property. So, free stays at hotels and frequent flier miles that accrue on the better credit cards are excellent bonuses to receive.
Credit Card Problems to Avoid
There are things to avoid when attempting to make use of the PFCC method of real estate finance. For instance, you don’t want to apply to any cards that have higher interest rates right off the bat. This isn’t a game for those who have poor credit scores or problems in their recent credit history, because they just won’t be able to get good enough deals to make up for the high interest rates.
When you’ve got a bad credit card you’ll really come to hate it, especially if you make the mistake of putting part of the purchase of a real estate investing property on that card.
High maintenance fees are also killer and they can be very tricky too. If you max out a card in the purchase of property an end of the month maintenance fee could actually send you over the credit limit, causing lots of over the limit fees and a mystery rise in the card’s interest rate. Once that interest rate shoots up you can say good bye to profits in the resale of that property.
Avoid any credit cards with:
- Maintenance fees
- High interest rates
- Punishing over the limit fees
- Secured credit cards
These kinds of cards are not your friend in real estate investing. Make sure to read the find print on all credit card applications you start filling out so those little tricks don’t catch you off guard. Plus, if a card comes in the mail and doesn’t have the high credit limit you were promised, don’t even use it. Just call the company and have the card cancelled so you don’t try using it by accident. That way you can make the most of using credit cards for real estate finance practices.
