How To Use Credit Card Finance to Buy Property!

Credit card finance normally come under the category of bad debt. We discuss the topic of what is considered good debt and what is bad debt elsewhere on this website. However, many successful property investors have used and continue to use credit card debt in a positive way to help grow their portfolio.

The aim of the game with credit card finance is to be what they call a credit card tart. What you need to do is search out the 0% for a least 6 month offers, giving you at least six months to pay the credit card back for anything you have used.

The way some professional investors use credit cards is to use them to put down deposits on properties, or even buy the whole property (after all, at the time of writing (November 2007) you can still buy properties for under £30,000 – just check rightmove.co.uk and type in Lancashire or a few other locations in the North as the area you want to search in and a whole host of properties will come up).

If you have a good credit rating then using credit card finance might be fairly straight forward for you. If you had 1-3 credit cards with 0% interest, you could probably buy one of these properties and have it for 6 months interest free without a mortgage while you fix it up a little. Then you put a mortgage on it, and it could work out to be a no money down deal. Below is an example of what we mean.

• Property bought with credit card finance on 0% interest for 6 months = £27,000
• Cost to fix it up plus solicitors' and all other fees = £4,000
• Total amount you have invested in the deal, i.e. £27K + £4K = £31,000
• Price valued at after fixed up (fixed up within 6months interest free period). = £38,500
• Mortgaged at 85%LTV so you can rent it out, after fix up = = £32,725
• THIS IS A NO MONEY DOWN DEAL! You invested a total of £31,000 and after putting a mortgage on it for £32,725 you had no money in the deal in fact you got money back = £1,725 Excess money to go straight into your pocket if you wish

During your research of these cheap UK properties you need to make sure you can get mortgages on them. Many lenders won’t lend on properties below a certain value: for some that may mean below £50,000, for others below £40,000, and so on.

The last thing you want to do is use credit card finance to buy a property and then not be able to put a mortgage on it afterwards.

You could be stuck with a property with good rental yield, but, because the credit cards interest rates are so high, you will be making a loss. However, there are some lenders who are specialists in the field of mortgages for lower value properties.

Any good mortgage broker will let you know which ones they are, and which ones are doing the best deals at the time you are looking at purchasing.

If you have no money at all to start your property investing portfolio but are desperate to get on the bandwagon, have a good credit rating and a few credit cards, this may be a feasible way to start off your investing. But unless you want to go bankrupt very quickly there are a few rules it is advisable that you follow.

1. Never pay interest on credit card purchases. Either pay off the credit card at the end of the interest free period or transfer on to a different card (there may be a small fee for transferring). But ideally you should aim to pay off the debt during the interest free period.
2. Only use your credit card finance to buy assets. This could be putting a deposit down on a property, or may even be paying the builders, but, whatever you use it for, make sure it is something that is contributing towards putting up the price of your property, so that you can sell or remortgage it and pay the credit card company back.

Related Articles! Gearing Investment Property How to Finance Investment Property to Make a Profit Financing Investment Properly

3. Only use credit cards as a short term bridging finance option while you get a mortgage or other more suitable finance on a property.

Using credit cards to get you started on your property investing career isn’t for the faint hearted. However if you have your figures worked out and have done your research correctly it can be fairly safe.

if you do feel you need to use this method to get you started, than once you have got a bit of money in the bank, you should consider using other methods instead, such as buying for straight cash, and then putting a mortgage on it afterwards. After all the lending market is fickle, and there are already less 0% credit card offers around today than there were a few years ago. So it is best to have a contingency plan for when/if they do stop doing these offers.

return from this credit card finance page to the home page of investment property guru

Return to top