That’s right. I said it. Use your credit card.
I’m sure most of you have heard the explanation of bad debt versus good debt. Bad debt is when you finance purchases like flat screen TVs, cars, vacations, or…look out, I’m about to say it… your own home. Good debt is when you finance purchases that will give you a return. Education is a big one. Another big one? Real estate! (The right real estate, of course)
It’s simple. If the interest rate on a loan or debt service is lower than the return you are making on whatever you buy, you’re making a profit!
When and How to Use Your Credit Card
Using a credit card will obviously only get you so far in real estate because most likely you have a credit limit. Say $15,000. So you won’t be paying all cash for a $100,000 property anytime soon, but there is a lot in real estate you can do with $15,000. You can buy a $50,000 rental property using a mortgage with 20% down. $10,000 for the down payment and $5,000 should cover closing costs. Bam! You just bought a rental property with a credit card!
Is using a credit card a smart move in every case? No way. Let’s say you buy said rental property and said rental property is bringing in a 10% ROI. Your credit card is charging you 17% interest. That won’t work. I mean, it will work, but you’ll be losing money so don’t do it. But what if you are really well established with a credit card company and you can pull off paying only 7% interest and the property is bringing in 10%? That works! Well, maybe. Don’t’ forget the amount of interest you are paying on that mortgage too.
Eek! Things are getting confusing! Don’t worry, it’s easy.