Owning a property outright with no mortgage may be a good thing but if you take this as a cash advance of a credit card you will pay very high interest on it opposed to much lower home loan interest rates. Is the interest paid on a credit card that you used to purchase an investment property tax deductible?
Paying with credit card
- Thread starter KeenInvestor
- Start date
Cash advance from a credit card is instant high interest rates,
I would personally never take cash from a credit card as then I have to pay interest.
I have "never paid any interest" from my credit card in years,just use their money for the 55 days for free,pay out fully at the end of the month.
Collect the rewards.
Your system I believe has flaws?
Bendigo Bank Black Visa has same interest rate for cash advance and purchase, you just don't get interest free period on cash advance. I think it is currently 11.99%
I like lateral thinking, but there are a number of flaws in the idea of doing as you suggest:
1) The lender won't hand over the $100K to anybody but the vendor of the property, so that they get security over the title exactly concurrently with payment.
2) Loading up the card to +$80K, as wobbycarly suggested, unfortunately probably won't work. With many credit cards, transactions more than the credit limit are automatically rejected, even if you have a debit balance. eg Limit is $500, even if you're at +$500, the system won't approve a $1,000 transaction.
3) The value of the merchant fees paid will usually exceed the value of the benefit obtained by the purchaser in terms of points. Points are worth about 0.7c each, if you swap for cash/purchases/newer FF programs, or up to about 3-4c each if you can swap them for flights under one of the more generous schemes (eg Qantas Classic rewards). As you usually get a point per dollar, the benefit is usually limited to 0.7%, whereas the vendor will probably be paying 0.7-2% in merchant fees, and will pass those on to you as an increase in the purchase price.
As for buying a property outright using a cash advance from a credit card, yes, you pay higher interest rate - which random acknowledged
- but there are significant advantages, eg quicker to settle, much less paperwork and frustration, playing "valuation bingo", etc. You also don't have to worry about whether your income and asset profile fits into the lenders' increasingly small boxes. It's similar in concept to using "hard money" in the USA - easier access to cash, in exchange for a higher interest rate.
1) The lender won't hand over the $100K to anybody but the vendor of the property, so that they get security over the title exactly concurrently with payment.
2) Loading up the card to +$80K, as wobbycarly suggested, unfortunately probably won't work. With many credit cards, transactions more than the credit limit are automatically rejected, even if you have a debit balance. eg Limit is $500, even if you're at +$500, the system won't approve a $1,000 transaction.
3) The value of the merchant fees paid will usually exceed the value of the benefit obtained by the purchaser in terms of points. Points are worth about 0.7c each, if you swap for cash/purchases/newer FF programs, or up to about 3-4c each if you can swap them for flights under one of the more generous schemes (eg Qantas Classic rewards). As you usually get a point per dollar, the benefit is usually limited to 0.7%, whereas the vendor will probably be paying 0.7-2% in merchant fees, and will pass those on to you as an increase in the purchase price.
As for buying a property outright using a cash advance from a credit card, yes, you pay higher interest rate - which random acknowledged
- but there are significant advantages, eg quicker to settle, much less paperwork and frustration, playing "valuation bingo", etc. You also don't have to worry about whether your income and asset profile fits into the lenders' increasingly small boxes. It's similar in concept to using "hard money" in the USA - easier access to cash, in exchange for a higher interest rate. We bought a small furnished mobile home.
Paid by credit card...but used the cheques they sent with it.
Paid $10 K in $2007.
Rents for $900 month all inclusive. Not bad
Not bad at all Kath , wish I could find 1/2 a dozen of those !
Cheers
Worst part, there are dozens of them available.
The restrictions on the parks that will allow them now is what is holding us back.
The one I mention above is 12X48.
I can purchase one now 14X64 for $5000 and spend another 2K to move it to the park.
Most mobiles are oil heat, and the parks do not like that either.
Unless we purchase our own land, and then start to move mobiles onto them, we are hesitant to buy too many.
The next propblem is being able to buy land that permits mobiles. Then there are restrictions on the number you can put on them without subdividing the land. Then of course you have to install sewer, water, electicity etc.
This all starts to add up.
But yes, thank you it was a great deal.
The one we are finishing up now is a mobile on its own land we are purchasing for $20K. We give the vendor $1k a month for 20 months.
In turn we are offering it as a Rent to Own for $750 month for 10 years.
This is strictly done for cash flow, as the tenant will be responsible for all maintenance and repairs.
The lawyers fees will be higher than normal, as the owners live in USA, and they are not using a lawyer.Time consuming and we are willing to pay the bit extra..it is a great deal.
Cash advance from a credit card is instant high interest rates,
I would personally never take cash from a credit card as then I have to pay interest.
I have "never paid any interest" from my credit card in years,just use their money for the 55 days for free,pay out fully at the end of the month.
Collect the rewards.
Your system I believe has flaws?
If your in a top shelf borrowing position. But really , short term it hardly makes any difference compared to fees and messing about going finance.
I also have deals with mine b/c I have a very good record with them and I also explained what I wanted to do and we negotiated them down a bit so the rates aren't too bad . Although my spare backup is much higher and that does hurt if I have to dip .
I only do deals whereby financing myself going this way, costs me around 20% out of that deals profit margin to hold it for the 12 mths , it's still well worth it even if that is more than the alternative .
When I first started b/c I was self employed I had a lot of trouble getting money .
I went partners in one , that costed me 50% , I tried wrapping the next one , which at the end of the day still wound up costing me 45% - 50% or so , in & out, but I can get the card method down to around 20% all up and I'm entirely the boss.
I'm not saying it's the best way to go , but if you have trouble getting finance it can get you moving until your in a better position , has me.
Cheers
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Yeah clever stuff Kath . So the parks clamp down ? the bugers know your getting their profit !
I'm not sure what the go would be here with that . I know I can get vans into parks ok but the letting it out from the parks point of view, any restrictions and what a profit margin left after park costs would look like. I'd like to take a look at that one here . As far as putting cabins into a park here, also no idea .
Nice rent to own deal there too by the way and similar to one I've done here coincidently .
I put a transportable on a block here and did a 13 yr rent to own on it at $700pm.
Because of card financing though it works best to get that down asap of course and that does bite into profit but I'll pay it out via another deal I've done this year, a reno, I think you guys call them fixers .
The transportable on block deal works out at roughly '20% CP 'for the first 5 yrs and then reverts to 100% CP for the remaining 8 yrs , similar set up to yours so that's a nice one.
The only problem there is and it was a biggie, the council didn't like the transportable and like you ,wanted it completed sewered and fully connected .
Where as I put it onto a composting and solar system . It all works beautifully and the buyer has no bills and reckon it's great and hey, aren't we suppose to be going as green as possible but try telling the council that .
That one is out of town though so what difference it makes is ridiculous .
Anyway , they decided to let it go this once but if I did it again under that same shire they'd be all over me .
And as you say that leaves connecting costs, permits, fees, which really bite into the old margins as you say but I am still looking into that one myself too again coincidently.
Like you I still find it has heaps of potential , I just need to work out a viable system for the areas and keeping my margins .
I couldn't put on more that one here or council will class it as a park and force e to set it all up accordingly which is way out of realm of course .
But I have found the idea of the buyer atleast having somewhere to stay, live and call their own, while they can then build at their own leisure from there, really appeals to them. My first one had many inquiries, I really could have sold it 100 times over I think .
Cheers
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I hear what you are saying,I also have been self employed for a lifetime,
About 8 years ago I wanted to buy quite a few parcels of land and wasn't able to because of a postcode problem and such large deposits required by banks.
I will never be held back and when I want to do something it is hard to stop me.
I was able to sell vehicles,use credit cards,any thing to raise the 30+% deposits on these properties,
If I didn't take that risk and do that I wouldn't have as much as I have now
So I see your point
I hear what you are saying,I also have been self employed for a lifetime,
About 8 years ago I wanted to buy quite a few parcels of land and wasn't able to because of a postcode problem and such large deposits required by banks.
I will never be held back and when I want to do something it is hard to stop me.
I was able to sell vehicles,use credit cards,any thing to raise the 30+% deposits on these properties,
If I didn't take that risk and do that I wouldn't have as much as I have now
So I see your point
Yeah your spot on Painter , it's just a another way of getting in the door if viewed from the right perspective, is all I'm really saying. Far from the best way but as you know lack of financing ability stops you dead in your tracks if you don't do something doesn't it !
I really envy some of the people around here that can really call the shots with their financing to be honest .
Gutsy move on your 8yr ago number to by the way. Glad it payed off for you, gutsy moves like that deserve it I reckon. Sound like you've set yourself up nicely since .
Cheers
