Real Estate Investor Bought 35 Properties on Her Credit Card — Is This a Good Strategy for You?
Think it takes a lot of upfront money to buy a property? Think again. Detroit investor Ashley Hamilton uses a strategy to buy properties that requires little, if any, money out of her own pocket and has allowed her to slowly build an empire.
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As reported and verified by Insider, Hamilton has bought 35 units across 30 properties in the past 14 years, all in Detroit. So, how does she do it, and is this a viable strategy for the average investor?
Hamilton’s Strategy
As unconventional as it may seem at first glance, Hamilton’s primary investment strategy is to use 0% balance transfer credit cards to generate the cash to make her purchases.
It works like this: Hamilton finds a no-fee, 0% balance transfer credit card and accesses the money via convenience checks. This allows her to deposit the money directly into her checking account, rather than using the more traditional fashion of paying off a balance on another card.
She then takes this cash and uses it to buy distressed or foreclosed properties in the Detroit area, some of which she has purchased for less than $10,000. Next, she fixes them up and rents them out. She pays off her balance transfer debt through some combination of rental income, a cash-out refinancing or some other source of funds, such as a tax refund.
Of note, Hamilton always tries to open credit cards that offer cash rewards in addition to the 0% balance transfer rate. This way, all of her relatively sizable transactions actually kick cash back into her pocket, helping her to pay back the loan and/or fund future projects.
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What Are the Pros?
The main pro of using a 0% balance transfer credit card to finance a property purchase is that no money comes out of your own pocket upfront. Although there are usually fees of 3% to 5% to access that money, there’s no interest expense in taking out this type of loan. Plus, the process is much more streamlined.
Rather than having to apply for and get approved for a mortgage — and in the current environment, take out a high-interest mortgage loan — Hamilton simply gets the cash deposited directly in her account, pays the small initial transaction fee and then has typically 12 to 18 months to pay her loan back, all the while paying zero interest on the transaction.
What Are the Cons?
When this strategy works out, it’s actually pretty slick. But the downsides can be significant if you are not an astute manager of your money, or a good investor.
For starters, the 0% loan you’re getting from your credit card company typically lasts no more than 18 months, and often just 12. If you can’t pay it back in that short time period, your interest rate will typically skyrocket to 25% per year or even higher. In this scenario, it’s highly likely you’ll end up losing money on your transaction, so you’ve got to have a strategy to pay that money back quickly.
The other part of Hamilton’s strategy that makes it a bit risky is that you’ll have to know what you’re doing when it comes to updating properties, making them livable and renting them out quickly. If you’re not familiar with how these processes work, you’re not going to be able to learn them in the 12-18 months you have to pay back your loan.
Lastly, Hamilton benefits from knowing the ins and outs of a depressed Detroit real estate market. There aren’t many places left in America where you can buy depressed properties for less than $10,000, and even in Detroit, you’ll have to pick and choose homes that have a chance to recover after receiving some TLC. In other words, this isn’t a strategy that would likely work in high-priced real estate markets like San Francisco or New York City.
Is This a Strategy You Should Consider?
Although Hamilton’s strategy is certainly unconventional — and filled with potential pitfalls — it could work for others as well. It’s imperative, however, that investors go in with their eyes wide open and understand the pros and cons of the strategy. If you’re considering going this route, don’t make these common mistakes:
Choosing a card with an annual fee: This will only eat into your potential profits.
Failing to pay back the loan before the end of the 0% promotional period: This could result in skyrocketing losses as high interest rates kick in.
Overlooking cards with cash rewards: You can use these cards to leverage your spending and put some money back into your pocket.
Not having the skills to execute: This strategy requires the ability to cost-effectively improve properties and get them rented quickly.
The bottom line is that Hamilton’s strategy is aggressive, and if you don’t have all your ducks in a row, you could get burned. But when well executed, it could prove successful. Just be honest about your knowledge, capabilities and discipline before you try this unorthodox method.
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