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.
Love credit cards! Advantages:
No closing costs.
With good credit – 0 percent interest for up to 21 months, with a 3 percent transaction fee (very low effective APR).
Unsecured debt.
Pay on time and continue receiving more and more credit offers.
One of my favorite techniques is to use my HELOC to purchase houses, then transfer the balances to credit cards. When, in the above 21 month example, the 21 month ends, simply transfer the balance to another card under similar terms until the house is paid off. Occasionally I receive offers of 0 percent interest rate and 0 percent transfer fee – FREE MONEY!
Obtaining a home with a Visa takes out contract identified shutting expenses and requisition charges. There is no moneylender contribution and for all intents and purpose no paperwork. Much of the time, you will wind up paying back the credit much speedier than with whatever viable contract or advance regardless of the possibility that the investment is the same in both cases.