credit card strategy

[rachael talcott]

I buy distressed houses with cash, fix them (mostly do the work myself) and then rent them out. 

I have $47K saved up, and found a house that meets my requirements listed for $48K .  I think they (shortsale, so owners and bank) would take $45K cash given that it's been on the market at this price for awhile.  Closing costs are $1K for a cash deal.  Insurance plus tax is about $1300/yr. Utilities $120/mo.  Rehab would be about $5K, maybe a bit more if I go with higher-end fixtures.  The HVAC is old (would cost about $4K to replace but the company I use has a 24-month same as cash deal)

So I don't have quite enough money, but I'm close.  I save about $4K/mo, so three more months will be enough. 

I called my bank and they said that they might be able to give me a $5K personal loan, but no guarantees and no guesses about rate.  They will get back to me Monday.

Then I started looking at credit cards.  There are plenty of cards that offer 0% interest for a year or longer.  I could charge all my purchases at Lowes and Home Depot and the paint store (the $5K rehab).  The insurance company I use accepts credit cards, as does the local utility company.  I could also put some personal expenses on it -- gas, groceries, etc -- although that is not a huge amount.  I've been reading about people loading Serve (prepaid AMEX card) from a credit card to pay the mortgage.  Another option is ChargeSmart, which would charge me 2.75% to pay my BoA mortgage with a credit card. 

Now I'm wondering if I should forget the loan from my bank and game a credit card or two for six months or a year, which would allow me to replenish my emergency fund and maybe even pay off the remaining $16K on my mortgage.  There is one card that offers cash advances at 8%, so if I had an emergency that I couldn't put on the no interest card(s), I could have that as a backup. 

Am I totally crazy?  If I wait six months, another rental house will come along, but this one is tempting because it also meets the requirements for a flip (i.e. cost plus repair should equal 70% or less of after-repair-value).  So the deal would also pay off when I sold it.  It seems like the main danger would be that I'd need to be careful not to spend more than I can pay off when the 0% interest deal expires, but given that I can save $48K a year, it doesn't seem too crazy to put $10-20K on a card or two for a year.  And once I rent the house out, my savings rate will go up.

Please poke holes in this plan.

RT

[daverobev]

The strategy is fine. Only you know if you're at risk of paying 20%+ in interest by not paying off the cards on time.

I'd find a card with good rewards, plus one with long/free balance transfer.

Discover are doing a double cashback promo at the moment, I'd look at that. Also Chase Slate is 0% APR the longest IIRC.

[rachael talcott]

Thanks.  I just signed up for the Discover card with the double cashback.

Slate is definitely the best for balance transfers.  So once I actually have a balance to transfer, I may get that one. 

[arebelspy]

If you decide to go this route, and are comfortable with the risks, there's a ton of credit cards out there with a 0% intro balance transfer rate (and usually a 2-3% fee), so your effective rate on it, if you paid it off by the time it was scheduled to bump from 0% to a high rate (typically a year) would be that fee (so 3%--though higher, annualized, if you pay it off earlier).  There's no reason to pay more than that.

Of course, if you can get a loan at 8% with no fee and keep it for a shorter time period, that might be effectively cheaper.  You'd have to run the numbers.

[rachael talcott]

Slate actually has 0% interest plus free balance transfers for a year.  So as long as it's paid off before that year is up, it's a free loan.  I suppose the only downside is that I usually use my Lowes or HD credit cards that give a 5% discount at the register. I'd be passing that up.  But still.

[CWAL]

If you time your CC apps properly, you can get your 5% discount plus the free financing, but you can actually do quite a bit better.

Lowes/Home depot card is good for 5% off, but the Discover IT card gets 5% quarterly categories, with the current doubling will give you 10% back on $1500 at home improvement stores (yes, it does double even the category bonus).  If you didn't sign up for the Discover with the quarterly bonuses, you may be able to call them back and change it.  I think it usually offers $150 back on the first $500 purchased as a signup bonus.

If you're doing this after September, just go ahead and buy $1500 of Lowes/HD gift cards on the Discover somewhere around September 20th or something so you get the 10% back.

Alternatively, you can buy Lowes gift cards for 10% off from gift card resellers pretty easily, so you could use a 2% or 3% cashback card (2% is easy, Barclay arrival+ or Capitalone Venture.  3% easiest option is Citi AT&T card which gives 3% for online purchases, a giftcard reseller *should* count.  Citi double cash is an option too, and citi approves cards left and right.  Barclay's can be a bit stingy) for a total of ~12-13% off the home improvement purchases, up to an unlimited amount.  Just be sure to figure how much purchase you need and don't buy extra gift cards. :)

After buying everything on the cashback cards, obviously BT to a interest free card.  Chase has been getting tough on new apps lately, so if you've got more than ~5ish new cards in the last year or two, they have been making it a pain to get their cards recently (this is a very new development within the last 2 months or so).

Good luck!

-Advice from someone who reads credit card churning and manufactured spending forums and participates in said activities way too much for his own good. :)

[Another Reader]

Discover is offering 5 percent cash back at home improvement stores starting July 1st, as one of the rotating cash back categories.  I thought Citi offered the double cash back card - did I miss a deal?

[rachael talcott]

Thanks CWAL and Another Reader.  I did get the discover card with the quarterly categories but didn't see that the upcoming quarter was home improvement stores.  Bonus!  I've been reading the manufactured spending / CC churning forums in the past few days, and it's tempting, although there does seem to be some risk. If I'm following, I can get a prepaid Redcard, buy a Visa or MC gift card with a credit card, transfer the gift card amount to the Redcard at Target, and then use the Redcard to pay my mortgage.  But there is a risk that Target might refuse this transfer without warning.  If that happened, I'd be stuck using the gift card for normal spending, which given my spending habits would take awhile.  Have I got that right?   

[CWAL]

More or less, yes.

Most people, myself included, find it easier to just pay back the same/other involved credit card with the redcard.

If redcard changes and no longer accepts the prepaid debits as reloading, just take it to a grocery store, buy a money order (money order can be bought with pinned debit cards), and deposit it to your bank.  Usually adds around $.75-.89 per $500.  I prefer buying MO ~$498, so MO+Fee<Prepaid balance of $500.  Swipe the remaining $1.25 or whatever on some random transaction as credit and it should autodrain.

I would get comfortable with MINIMUM two methods of cycling money before you try to do this seriously.  Start slow over one or two months, try cycling ~$2000 over two separate methods (Redcard and MO are accepably different enough) per month.

Keep careful track of each card purchase, including when, where, how much, and an indicator of which prepaid you bought (I keep track of the last 4 digits of all cards involved in purchase, use, and draining).  I also keep all receipts and packaging.  This saved me once on $500 when a card didn't activate properly at first.  Keep track also of where you drain the card, and if you're doing MOs, where the MO is deposited.  I have both an excel and physical system for making sure I don't lose any card with remaining value on them.

I currently have ~$10k of floated money in bank accounts, and ~$12k of floated money in various prepaid products.  This is a bit higher than I normally do, as I am trying out some new strategies, getting comfortable with higher volume, and gearing up for a new opportunity I will be taking advantage of in 4 or 5 months.  I typically pay my CCs before the statement posts so the statement balance is zero, and I show little to no utilization on my credit reports.

[rachael talcott]

Thanks again, CWAL.  I didn't know about the money order option.  I think even if I don't buy the investment property, I will dip a toe into this. I am traveling in the near future to a town that has a Target that sells Redcards, so I will pick one up. 

[CWAL]

I originally started to meet signup spend requirements, and slowly started spreading out.  It's a bit of a semi-addictive hobby to me now, and it really makes you see how money is nothing but an electronic scoreboard for society that can be gamed to move the score around. :)

[Kriegsspiel]

Thanks CWAL and Another Reader.  I did get the discover card with the quarterly categories but didn't see that the upcoming quarter was home improvement stores.  Bonus! 

Word to the motherfucking STREET!

[rachael talcott]

it really makes you see how money is nothing but an electronic scoreboard for society that can be gamed to move the score around

You missed your calling as a Wall Street investment banker :-)