How to Use Low-Interest Lines of Unsecured Credit to Finance Your Real Estate Deals

Copyright © Thomas J. Lucier

Most of the straight-laced professors, who teach finance classes at graduate level business schools don’t like to admit it, but credit cards have been the source of the majority of the lines of unsecured credit, that have been the financial lifeblood for most small business start-ups over the past twenty-years! And contrary to what many so-called financial experts may espouse, there’s nothing that’s financially irresponsible about the judicious use of credit cards. The fact of the matter is that low-interest credit cards provide financially responsible adults, with readily available lines of unsecured credit, to buy appreciating assets, without having to first submit to a financial strip search, or pay outrageous loan fees! You must understand that in this business, access to readily available sources of cash allows investors to take advantage of opportunities to buy properties at below market prices, the moment they become known. I’ve found that low interest lines of unsecured credit, are the most cost effective source of short-term financing available today. And I’ve been using low interest lines of unsecured credit for the past fifteen years, to finance both the acquisition and turnaround of small, mismanaged rental properties. I use the cash flow from the property to pay the credit line balance off in monthly installments. Believe me; once you factor in outrageous loan fees and rip-off third party due diligence costs, that are required in order to obtain a commercial mortgage loan on a mismanaged rental property with an “insufficient cash flow,” you’ll quickly come to the realization that low interest lines of unsecured credit make financial sense.

I currently use three fixed-rate low-interest lines of unsecured credit that come with credit cards issued through three national banks. As you probably already know, banks and credit card companies routinely offer low interest lines of unsecured credit to customers with excellent credit, in the form of so-called “convenience checks.” These checks aren't cash advances per se, as they carry very low interest rates, which remain fixed, until the credit line is paid off. To me, the real beauty in using unsecured lines of credit, instead of secured credit lines, such as a home equity line of credit (HELOC), is that you don’t have to put your home on the line and pay those exorbitant closing costs; that lenders generally charge borrowers, for the privilege of doing business with them. In fact, the most that I have ever had to pay, when using an unsecured line of credit, was a $50 transfer fee. I don’t know about you, but I don’t know of any mortgage or deed of trust lender on Planet Earth, where I can borrow $50,000 at 2.99% interest without filling out an intrusive loan application or pledging any collateral, and have “closing costs” of only $50. And when you use low interest lines of unsecured credit, instead of having to run to some bank and beg for money whenever a bargain-priced property comes along, you automatically:
1. Reduce the number of inquiries in your consumer credit files, which could adversely affect your credit score.
2. Reduce the chances of your identity being stolen during the loan approval process.

How I Earned a Fast $57,000 Profit by Using Cash from Unsecured Lines of Credit

I once bought a vacant four-unit rental property in West Tampa, by using cash that I had obtained from two low-interest lines of unsecured credit. The owner lived in Macon, Georgia and just wanted out of the property. Luckily for me, she received a copy of one of my letters that I routinely mail, to out of county property owners, on the same day that she decided to throw in the towel and sell her property. She sent me an e-mail with the property’s address along with the name and telephone number of her sister, who was acting as her property manager. And five business days later, after I had performed my due diligence, I was the proud owner of a rental property that I had bought for $62,500 cash, which was approximately fifty percent below its market value of $125,000. Six months later, I turned around and refinanced the property with a loan for $94,000, which was seventy-five percent of its value. I promptly repaid the $68,000 that I had borrowed to buy and fix-up the property. The remaining $26,000 went into my savings account, and I still had $31,000 worth of equity in the property. And I had made an initial profit of $57,000, simply because I had bought the property for cash. All told, I earned an $82,000 profit on the property, when I resold it eighteen months later for $150,000.

How You Can Obtain Low Interest Lines of Unsecured Credit

If you’re creditworthy and have a source of income, you should be able to obtain low interest lines of unsecured credit from banks and credit card companies that offer lines of credit with their credit cards. Credit card interest rates are tied directly to cardholders’ FICO scores. And your initial credit limit will be based on your credit score, income and amount of outstanding debt that you have. But once you have a solid track record of making payments on time, you can usually get a credit limit increase every six months. If I were you, I would obtain your credit cards through reputable regional or national banks. A word to the wise: Don’t go hog-wild and end up with a wallet or purse full of credit cards. I recommend that you limit the number of credit cards that you hold to four. I am telling you this because most credit cards have lousy terms and interest rates, which are clearly stacked against cardholders. When selecting credit cards, I suggest that you choose cards that offer the lowest fixed interest rate, and avoid cards with zero and low interest teaser rates that jump into the high teens once the teaser rate expires. The following Web sites have information on credit card offers from numerous banks and credit card companies:
www.cardweb.com
www.creditcards.com
www.cardoffers.com

The information in this article is from Thomas Lucier's book, The No-Nonsense Real Estate Investor’s Kit.