It is a very heated topic among experienced real estate investors.  Using credit cards in real estate.  Some investors swear by it saying it is one the best forms of leverage they have.  Others would rather pass on a good deal than enter the realm of credit cards in real estate.  Factually, there are many ways credit cards can be utilized in real estate (all depending on your credit limit).  What you use them for is up to your level comfort in your ability and the investment.  

Rewards and Advantages

Credit cards can be lumped into two categories: store cards and bank cards. Store cards are cards that are store specific that can only be used at a particular retailer.  Think Menards Big card or Lowe’s Advantage.  The second major type of credit card are your bank cards.  These are issued with a Visa, MasterCard, Discover, or American Express mark. These are the cards that can be used most anywhere. These offer the most versatility.  

So what can someone do with a credit card in real estate? The obvious use is making purchases and delaying the payment for it.  We’ve probably all done that at some point or another. The handy thing about this is most any credit now days has cash back rewards or point system.  So as you purchase your repair items you are earning cash back or gift card rewards.  I use my Capital One rewards to get restaurant gift cards and treat myself. You can also opt to directly credit your cashback to your bill.  

The advantage of a store card is that most allow you to pick cashback or 6 month interest free financing for large purchases. They also may run specials that are exclusive to current card holders (i.e. 2% APR on flooring purchases for 3 months). The Menards Big Card gives you a percentage back from every purchase in a quarterly rebate and you can earn additional 1-3% by making brand loyal purchases.

Cash Advances As A Form of Payment

There are investors who use credit card cash advances to fund cash property purchases on fixer uppers. Usually this is done when they have their eye on a deal and are in holding to be cashed out of another deal.  This is an advanced form of real estate investing for sure.  You definitely need to know when you will be liquid and have a back up plan if you don’t get the cash as expected.

You can also use the cash advance with craigslist purchases.  My girlfriend who is also an investor saw an ad for appliances from an apartment complex that was getting updated with all stainless steel.  They were offering 5-7 year old fridges and stoves for under $150 a piece. My friend got a cash advance for $2500 and we hauled 6 fridges and 5 stoves to her storage unit (in one very long day). Best part was that  everything was plugged in and verified to be working when we picked them up. She paid back the cash advance with only one billing cycle of interest and fees using the move-in she had coming 3 weeks later. If she hadn’t been able to take a cash advance she likely would have missed out on the deal because Craiglist deals are cash only.  After paying back the credit card she still had saved 55% on retail.  

After all this, do credit cards have usefulness in real estate? Yes, with moderation and correct usage. Under no circumstance do I recommend the cash advance for property purchase idea. It is very risky if something happens and you can’t pay the full amount back quickly. The interest rate becomes a killer quickly and you could be left overstretched.  If you can stick within a budget, there is no reason why you shouldn’t use credit cards and get the cash back rewards.  The key is to stick within the budget and be sure to pay it off in full every month.  As for my friend’s Craigslist purchases…that was just pure genius.

Categories: Real Estate Investing