Finding the money to take on more real estate investing projects can be a tricky balance between cash, credit and loans to make it happen. But there are some strategies you can employ to find the best balance for your business that will help you pay the lowest amount in interest and funding fees while still having all the cash you need to complete your investment projects fast.
Let’s focus on how to properly use credit cards for real estate investing. For many entry to mid-level investors, business and/or personal credit cards have a variety of benefits to helping with the expenses involved in fix/flip or rental real estate investing. But maxing out your credit cards can have a big impact on your credit score. According to Yahoo! Finance, “One of the major components in the credit score formula is the percentage of your available credit you have used. If this number is over 30%, your credit score can be hurt. So it would not be wise to owe $5,000 on your credit cards if you only have a $5,000 credit limit. You’ll be much better off lowering this percentage.”
There are a number of ways to make your credit card purchases work with your cash flow- as inconsistent as it may be. Here are some strategies to manage your monthly cash flow so you’ll have plenty of credit leftover for unforeseen emergencies.
- Never max out your credit card- instead split up your purchases on more than one card or pay some with cash for a big purchase and some on a card.
- Transfer your balance(s) to lower interest cards. A smart option when balancing credit card debt for a business is to constantly move higher balances to low or no interest cards while still paying down debt. Most cards charge a percentage fee to do this so always pay that fee immediately when the balance transfers- don’t pay interest on that fee too!
- Always pay off debt incurred on a project AS SOON AS THE DEAL CLOSES and you have recouped your investment and made a profit. DO NOT CARRY OVER PREVIOUS PROJECT DEBT to your next deal. Pay everything off – calculate what your actual and final take away profit was, and then start something fresh.
- Remember, you can’t put everything (like the purchase of a property) on your credit card so often an asset based hard money loan will also be needed. This is what we specialize in here at Center Street Lending and if you have questions please contact an expert fix/flip investment advisortoday to learn more! Our loans are asset based and do not require a credit score.
- As an alternative, you might also consider a personal loan to consolidate your credit card debts. This will most likely have a lower interest rate, and may free up your credit cards for emergencies. Make sure this does not tempt you to spend more money on your cards. And again- be sure to pay everything off once you get paid on a deal.
- Pay more than the minimum every month- even on months you have not made any money. On months you are in the thick of multiple projects and do not have income coming in- part of your cash flow strategy needs to include over payments on every credit card, every month. Even if your minimum payment is only $35 – you need to pay $75-$100. This helps minimize your monthly interest and also helps your credit score.
Real estate investing is always in flux because of changing market conditions and interest rates but your cash flow picture and financial plan doesn’t need to be. When you set out to do a new deal, set aside enough cash and credit on cards to complete the project with ease. And keep in mind that even your worst case scenario payoff at the end still has to cover every cost incurred during the project. That’s how smart real estate investors stay ahead.