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Oh, you know that not everything goes according to plan. So you made conservative estimates. You tacked a 20 percent margin of error onto the material and labor costs. You pinned a 10 percent margin of error onto the after repair value. And you hope that those margins of error are sufficient.
Related (Counter) Post: How to Buy Real Estate with Your Credit Card
When Can I Use a Credit Card?
Imagine: You a beginner real estate investor. You want to flip a house for the first time. You don have much money.
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If you have $20,000 sitting in a savings account, earning 1 percent interest, and you want to make a $20,000 purchase on your credit card at zero percent interest for a year, go ahead. You have the cash in the bank to pay the credit card in full at a moment notice. And you pocket the 1 percent spread. Congratulations, now you have an extra $200.
Refer to my rule: Don use a credit card unless you can pay the bill in full, immediately, on the same day that you make a purchase.
ANYTHING could happen that might derail your plans. The city could condemn your home. A major earthquake could cause your home to collapse and insurance could refuse to pay for the damage. Or Wall Street financiers could buy sub prime mortgages and sell them to Norway as AAA rated collateralized debt obligations, feeding a complex chain reaction that results in housing values plummeting by 50 percent.
(Personally, I spare myself the trouble and just pay the card immediately, but if you want to pinch pennies, be my guest.)
But hope cannot defeat the reality of risk.
Someone recommends that you get a Home Depot or Nike Women's Leggings
But if you don have the cash on hand, don subject yourself to the risk of getting hit with high double digit interest rates. It not worth the risk.
Lowe credit card, which offers 0 percent financing for 12 months, and use that credit card to fund the material purchase costs for your flips. What little cash you have can be used to pay for labor (and/or your own sweat equity can be used for labor). You presumably sell the house within a few months, use the profits to pay off the credit card before a single penny of interest is due, and pocket a decent payout, as well.
I don have insanely strong opinions when it comes to most real estate investing topics. If you ask me if you should Nike Winter Coats
If you have tens of thousands in debt on a credit card which suddenly escalates into a 29 percent interest rate, though, you dug yourself into the deepest pit of a hole that going to be excruciating to climb out of.
Should You Fund Your Investments with a Credit Card
Why? I can explain my stance in one word:You hope everything goes according to plan. You hope that your labor and material costs are close to the amount you estimated. You hope you don find any nasty surprises. You hope the city inspector doesn throw a wrench in your plans. You hope you can sell the house in the amount of time you estimated, for the amount of money that you estimated.
All those situations sound far fetched, I know. But sh happens. single digits), the fallout from risk gone wrong won be as bad. It still be a setback, of course, but assuming you leveraged wisely, it will be manageable.
But I a fundamentalist on the issue of credit cards. Nike Black Pants Women's
flip houses, become a landlord, try wholesaling or stick to REIT I shrug and Nike T Shirt With Nike Boxes On It say, that depends. Then I walk you through the pro and con of each. If you ask me if you should buy rentals in stable vs. shaky neighborhoods, I tell you that it depends on your goals and risk tolerance.
I firmly believe that if you can pay a credit card in full, immediately, on the same day that you make a purchase don use it!
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