Posted by Hugh Bromma on November 18, 1998 at 15:56:34:
IRAs and other qualified plans are great as your own source of funds for deals. You just have to make sure that you stay out of self dealing issues (see our site at www.entrustadmin.com) You can, however do some interesting deals with simultaneous closings where you have undivided interests in property, and also some methods that can provide you with very quick access to your IRA or qualified plan funds for auctions, or deals that come along and need quick closes. Call us for some of thopse details at 800 392-9653.
Hugh Bromma
being my own hard money lender? - Posted by James (CT)
Posted by James (CT) on October 14, 1998 at 08:14:02:
Okay,I admit it, years ago I bought something called the
Credit Card Millionaire System (see why late-nite or early-morning
TV is bad for you!).
The basic premise was to accumulate credit cards to the point
where you could lay your hands on cash to do deals, real-estate
or otherwise. So, over the years, I have managed to accumulate
about a dozen and a half cards totalling over $100K in available
cash advances. (note: except for one or two, there are no annual fees
on these cards, there are no balances on any of the cards and, interestingly
I still score out at 700+ on all three credit bureaus and I keep
getting offers in the mail for more cards and as long as there
is no annual fee, I take 'em!!)
So the question is, does it make sense to utilize this line of credit
versus a hard money lender? In effect, become my own hard money lender.
Buy a rehab at a deep cash discount, fix-up, sell, pay
off the cards, pocket the remainder.
If so, how does one do it?
Do I actually take 10 credit cards to a bank (any bank?) and
say, “Here’s my cards, gimme $60K”? Will they do it?
Or will they press a hidden button behind the counter and
have me taken away by the credit card police for having the
audacity to actually try to use these things?
Anyone have any experience with this sort of thing?
It is hard to say if you would be able to do that or not. I know a person who had $100,000.00 + CC balance for months and his CC were used for business purposes although the CC agreements clearly state that the credit lines are to be used for personal expenses only. In addition their agreement says that they can close your account if your total debt increases by whatever amount they find appropriate (also stated in the contract). Although he violated the CC agreement in at least those two instances he newer had a problem which doesn?t mean that he (or you ) won?t in the future. Notice that he used them for purchases and very rarely cash advances.
To expand on what Tom (NC) said the CC companies can and do increase their rates for no obvious reason (but their gain). I recently received a notice in the statement from one of my CC (Providian) saying that my rate is to go up to ~19.8% (23.3% for cash advances) and that I have the right to close the account in 30 days and keep the current rate. I immediately called them questioning the reason for the increase and I was told that “Since I called in the 30 day period I can keep my current rate and wouldn?t have to close the account”. Of course I politely asked to have that on tape for my records (I learned to always tape such conversations and ask for date, time and the name of the person I am talking to specially with long distance companies and such) and I am currently in the process of getting CC with a lower interest rate.
The convenience checks might be a good choice since with some of them the cash advance fee is waved (about 2%), but have in mind that these are usually out of state checks and your bank will hold them for couple days to clear before they deposit the $ into your account. Applying for CC that doesn?t charge a cash advance fee and has an APR same as for purchases is a better way to do it.
Eventually I am hoping to establish line of credit that doesn?t have so many clauses because I am bound to violate the CC agreement sooner or later and give the CC company the option to increase my APR or close the account.
Having said all that, if you decide to use CC for funding deals at least shop around, go to one or more sites that list CC deals offered nationwide and find a CC that suites your needs. Example: I found a CC that offers APR of 7.99% (not introductory, both purchases & Cash advances) and it doesn?t charge any cash advance fees. And another one with 9.89%. Compared to some that charge 2% fee their annual fee of $50 is very reasonable having in mind you will use it for huge cash advances. The only CC search engine I found that lists info on cash advance APR and fees is http://www.bankrate.com others just have basic info. If anyone finds another one that lists a lot of detailed info on the CC?s offered please let me know as they tend to feature different credit cards.
Have in mind that I am not an expert on the matter and everything I said is my personal opinion only.
Nothing wrong with the concept… - Posted by Mark R in KCMO
Posted by Mark R in KCMO on October 14, 1998 at 12:44:13:
James,
There is nothing wrong with the concept, I do rehabs and some of the funds for the fix-up are via my Credit Cards, but in a more conventional method, by just charging my materials.
Check in your area and see what hard money goes for, your credit cards might be in the same ball park as hard money.
Banks like to see a track record, and using your CC’s could be a way to build a track record, then a bank credit line should be no problem for you, you would no longer need to use hard money for the rest of your projects.
Powerful tool, but two concerns - Posted by John Behle
Posted by John Behle on October 14, 1998 at 12:06:51:
You’ve already shown the responsiblity to not use the cards in the wrong way. Great job. The other pitfall I’ve seen is when someone uses them for too long.
Credit cards can be great for quick deals and are a powerful tool. They can be expensive if they are used for more than a few weeks or days. Some even have special fees for a cash advance, that can be costly. As long as you know exactly what it will cost you, you have what I consider one of the most essential assets - the ability to move quick.
My focus is primarily on buying notes and I can use equity lines of credit to buy almost any size note that comes my way in as little as a few minutes. Some of my best deals have come as a result of that. A good friend of mine constantly buys houses with his credit cards. He’s a property manager and ends up with fabulous deals dumped in his lap that he couldn’t do if he couldn’t pay cash.
Just make sure there is an exist strategy. I view expensive lines of credit or hard money as a way to snap up a deal quick, but only for a few days or maximum a few weeks until cheaper financing can be put into place.
Re: being my own hard money lender? - Posted by Kevin(OK)
Posted by Kevin(OK) on October 14, 1998 at 10:00:06:
Be very careful if you use introductory rate cards. You know, the ones that say “4.9% fixed for six months”. First USA is in the process of being sued, because they immediately raised their rates on new cardholders to 18% or 19%, and they say it is in their right to do so. I believe FUSA (we know what the “F” stands for) will win. I have always heard that a credit card company can raise their rates to whatever they want, for whatever reason they deem relevant. Just be careful!
Posted by JohnD(CO) on October 14, 1998 at 09:54:45:
It surprises me that your FICO score is over 700 if you have that many cards. I bet it will go down if you start to carry balances (I dont know why). Keep in mind that some cards have a maximum per day advance amount (a $7500 credit card line may only be accessible for $2500 day). I never had the nerve to ask for more than $10K per day in cash advances, so I dont know what would happen if you tried to ask for 60K all at once. I suggest planning on having to get the 60K over a one or two week period. The credit card companies have a habit of doing inquires on your credit report if you take large cash advances. If they do an inquire and find that you have 50+K in credit card balances they may close your card account regardless of your excellent credit history (it has happened to me), this may be the button you were referring to. Call in advance for convenience checks, it is much easier to deposit a convenience check than it is to get a cash advance. The money on the deposited checks is not avaliable for a few days, but then my bank would not allow me to access the money I got from large cash advances for a few days either.
Re: being my own hard money lender? - Posted by JohnBoy
Posted by JohnBoy on October 14, 1998 at 09:43:55:
I would try to get a $100k credit line with a bank. One might just give it to you based on your credit history. If they don’t want to give you one for that much you can ask if they would give you one if you agree to close out most of your credit card accounts. Some banks may not want to extend you more credit with that much available credit from your credit cards. Some might. Some might be willing to extend a large credit line with the condition that you close most of your accounts. With a 700+ FICO you shouldn’t have much trouble getting a line of credit from a bank. You wouldn’t have to pay the 2% cash advance fees and 16-21% interest on the money you draw from the credit line. Its worth looking into.
I once took a credit card to a bank near the courthouse and asked for 10K to continue bidding on properties in the afternoon. It took them 45 minutes of calling, verifying and approving before I got the money. I could have driven to my bank on the other side of town in that time.
One problem with the use of credit cards is that they may have a 3 to 5% per month P&I repayment. Can you stand the negative cash flow? The ones that have a lower repayment schedule are usually high interest rate. Most of them today have a check “priviledge”. The banks want three days to clear those checks.
You can establish signature lines of credit that can be cheaper and easier. If you pledge stocks, CD’s or real estate for a credit line the rates are even better. The only problem is when the rehab work takes longer, the cost is more, and you don’t get it sold when you want. Those payments can turn into alligators.
The best choice is to accummulate smaller chunks of change by flipping or other similar deals and accumulate your own funds. Don’t you have an IRA? Is this investing for long term wealth?
Re: being my own hard money lender? - Posted by Tom(NC)
Posted by Tom(NC) on October 14, 1998 at 11:39:23:
I know that this is not necessarily the board for this, but I thought I would add to the message from Kevin(OK).
My wife and I have been NationsBank (I believe they are now AmericaBank or something like that) customers for over two years. We USED to have a Visa card through them. That is until they unilaterily raised our APR from 16.0 to (are you ready?) 21.4%!!! When asked about it, all they could say was that is the new rate for customers. The card was in my wife’s name, she has perfect credit. We had never been late with a payment, and in fact always paid $50-100/month. I did a little investigation, and Nationsbank still markets their credit cards to NEW customers at the following rates: prime + 2%, prime + 5% and prime + 7%. Even using their advertised rates, I could not come up with the ridiculus rate they wanted to charge us.
So…watch out, banks can and will raise their rates, even on good, faithful customers! Needless to say, we are shopping for another bank (have to find one that is almost nationwide-and in NC-due to the fact that I work in the filmbiz and never know where I will be working) and have canceled and paid off the Visa!
Re: Order Convenience checks - Posted by James (CT)
Posted by James (CT) on October 16, 1998 at 12:55:21:
Thank you (and eveyone else) for your response, John.
Yes, it surprises me too that my scores have remained so high.
Apparently, not carrying any balances must weigh heavily in my favor.
I have also been thru a couple mortgages and refi’s with all those cards
hanging out there and no one even raised an eyebrow. Just goes to show
you how score-driven the lenders have become.
But still, with all that credit available to me, you would think creditors
would be a little more cautious. After all, don’t they realize I am liable
to have a mid-life crisis at any moment and go completely crazy!?!? : )
Seriously, I was hoping you could elaborate on your experience.
Are you saying that if I advanced, say, $60K on some of the cards
that the other $40K that is available on the other cards may be cancelled
by the other card issuers? Is that sort of what happened to you?