Insider verified her home ownership by looking at the City of Detroit’s online records, as well her closing documents.
“I still have never signed a mortgage on a house initially,” the 36-year-old investor told Insider.
When she bought her first home in 2009, she was 22 and waiting tables part-time to support her two kids. She wouldn’t have qualified for a mortgage even if she knew how to apply for one, she said, so she paid in cash. It was a $6,300 foreclosure and she used her tax refund to make the purchase.
“When you’re low-income, the only time of year when you have extra money is tax time,” she explained. “That was always the best time of the year for me because I got an actual refund.”
Over the following nine years, Hamilton continued buying foreclosures in cash, renovating them, and filling them with long-term tenants. She bought one property a year, funding the purchases using her tax returns and her own savings, which started to snowball as she earned rental income from more and more properties, she explained: “By 2019, I had 10 properties free-and-clear — no mortgage, no debt — all in the city of Detroit.”
Her buy-and-hold investing strategy was working: After about five years, she was bringing in $4,000 a month in rental income, more than enough to cover her living expenses, and was able to quit her waitress job at 27. But, buying in cash was slow and tedious.
“I could only do one deal a year because I had to save for a year,” said Hamilton. “The second part of my journey, I wanted to use leverage. I wanted to use other people’s money.”
Using creative financing strategies like credit cards to do 11 deals in 1 year
Between August 2019 and August 2020, Hamilton bought 11 properties. She did more deals in that year than she did in her first decade of investing.
“The only difference was I started using other people’s money,” said Hamilton, who has continued to add to her portfolio between 2020 and today. “If you want to go quickly, use lenders.”
Rather than taking out a traditional mortgage, which is how many investors fund their properties, “I used creative financing,” she explained. “I was using credit cards, commercial lines of credit, and hard money lenders.”
Her preferred financing strategy right now is using a 0% APR credit card. That’s because interest rates are relatively high (the average 30-year fixed mortgage rate is 6.59% as of July 2023) and she’d rather take on more risk by funding a purchase with a credit card that offers 0% interest for the first year, which is “essentially a free loan,” she explained.
In today’s high-rate environment, this strategy “gives me an edge because I’m paying 0% interest, while a lot of my competition is getting mortgages at 7% to 8%, or hard money loans at 10% to 12%,” she explained. “I can compete because I can pay a little more [for the home] since I’m saving so much on interest.”
The first time Hamilton applied for a credit card for her business, she was approved for a $95,000 limit, which she used to purchase two properties and fund the renovations.
You can’t just swipe your credit card to buy a house like you would a pair of shoes, by the way. Real-estate closings typically happen at a title company’s office, where the buyer and seller sign papers and transfer ownership. The title company will take care of the transfer of funds and they’ll need a certified check from the bank.
As for how Hamilton actually uses a credit card to fund a down payment, she requests a balance transfer check, which allows some qualifying cardholders to transfer a balance directly into a checking account.
“I would never use a cash advance because the fees are astronomical,” she said. (Taking out a cash advance involves borrowing from your card’s credit limit. You can either withdraw your cash advance from an ATM or at the bank.)
“Typically, when you open a 0% credit card they give you an option to do a balance transfer, and a lot of times those offers come with direct deposit,” she explained. “For example, let’s say I open up a new credit card and get a limit of $15,000. For a small fee of 3-5%, they will do a balance transfer into a checking account via direct deposit and you will get 0% interest typically for 12 to 18 months.
“Once the funds are directly deposited into my bank account, that is when I get the cashier’s check or do the wire transfer to purchase the property.”
Balance transfer checks can backfire and create more debt if they’re not paid off, and experts typically recommend against doing a transfer like this.
Hamilton doesn’t recommend rookie investors try this strategy, either, unless they consult with someone who has successfully purchased real estate this way.
“More context and tools need to be provided, like a spreadsheet to help you keep track of everything to make sure that you’re going to pay off the debt before the 12 months is over, because the goal is to not pay interest and to not pay extremely high balance transfer fees,” she said
If used incorrectly, a balance transfer check “could be detrimental,” she emphasized. “Because some people will buy things that don’t produce income and potentially not have enough funds to pay off the credit cards before the 0% expires, which will put them in financial hardship.”
After purchasing a property, Hamilton will fix it up to rent it out and then refinance to get cash to pay off the balance transfer.
With this strategy, “I use the credit cards to get started and then I use the bank refinance to continue,” she explained. “So, I still have never used a mortgage to obtain the property, but have used a mortgage on the refinance at the end.”
The one big catch is that Hamilton typically has to finish a project within a year, since she needs to refinance and pay off the card before the 0% APR introductory period is over. After that promo period, a card’s ongoing APR (which will be much higher than 0%) will kick in.
“While it’s 0% interest for the first year, if you don’t pay it off, now you’ve got the highest interest after that one year is up,” she explained. The average credit card interest rate was 20.92% in the first quarter of 2023. “You have to make sure that you are able to execute and complete the project in a timely manner.”
It takes Hamilton about four months on average to complete a renovation project, she said, “so I have a cushion of eight months for things to go wrong.” She has years of experience, though. “If you’re new to this and not familiar with all the pitfalls and delays with renovations and closing, definitely get guidance.”
Her 3 rules for using a credit card to buy a home
When using a credit card to buy a property, Hamilton follows three rules:
- It has to offer 0% APR for the first year. “If not, it defeats the purpose,” she said.
- It offers cash rewards. Since Hamilton ends up putting so much money on a credit card when buying and renovating a home, she racks up so much in cash rewards that she considers it a revenue stream. “I cash in about $1,100 a month in cash rewards from purchasing properties and material,” she said.
- There’s no annual fee. Hamilton doesn’t like to cancel credit cards, which can make your credit more fragile; but sometimes she rarely uses them again after the 0% APR period is over, so she sticks with cards without annual fees. “If I’m paying that yearly fee then it’s not an asset anymore,” she said. “It’s a liability because I’m paying to have the card.”
While Hamilton is more likely to use a credit card to buy property in today’s market, it’s not the only way she finances homes. She thinks of this strategy as just one tool in her toolbox that she can use when appropriate.
“The market always changes,” she said. “The only thing for certain is that nothing is certain, especially when it comes to real estate. Just a year ago, I was using lines of credit because interest rates were great, but now interest rates are so high that a line of credit is going to kill your profit. Now I’m going to go back to using 0% interest credit cards.”
