Steve and Jodi Faulkner

We are in the house renovation or house flipping business. As such, we use many tools in the course of the day. A hammer used well helps build a sturdy wall. This same hammer used poorly helps makes a swollen thumb. The hammer is not bad or good. How it is employed is what is important. The same can be true of credit and credit cards.

The late Lewis Grizzard, newspaper columnist and author, used to refer to credit cards as financial heroin. Do they really deserve this reputation or are we continuing to blame our own lack of discipline on inanimate objects? We have a lot of friends who believe that credit cards are of the devil.

While we respect our friends' rights to their opinions, we also realize that there can be gray areas in our world. The Bible warns us about being a borrower or a lender. We should heed this wisdom. The Bible doesn't tell us that we can't borrow or lend - it just tells us that there will be consequences for our actions. Interest is one of those consequences.

We do know, too, that sometimes circumstances call for the wise use of the tools available to us. Credit is one of those tools and we will discuss that in this article.

Consider this case in point. I received a call the other evening from a friend who had an opportunity to buy a large commercial building in the downtown area of our town. He is an artist and a paint contractor and has plans for opening a gallery and other such uses for this building. He has a chance to buy the building for $30,000. The structure needs about $20,000 of renovation and will easily be worth $100,000. The catch is that the seller wants cash now.

My friend went to the local savings and loan and was approved for a loan right away but they told him it would take 30 days to close. This is normal for a real estate transaction. The seller of the commercial building also had another cash offer from an attorney but he didn't want to sell to him. I received a frantic call from my friend trying to find the cash to buy this building. He wondered if I knew an investor who could loan him the cash short term.

We talked for a few minutes and I asked him about a line of credit or bank loan. In the course of our conversation he remarked, "I have several of those high limit credit cards in the drawer but we never use them. It would be stupid to use a credit card for this, wouldn't it?" My friend is a good Christian man who believes that the borrower is slave to the lender and credit card debt is bad. I believe that both those statements are true, but that credit cards may have a place in your portfolio.

We talked a little bit and I made the case that he could borrow enough cash to pacify the seller of the property by getting it from the credit cards. He needed half the sales price in immediate cash. The credit card sharks would charge him a 3% cash advance fee and 20+ % interest for 30 days until the mortgage closed. The total cost would be between $800 and $1000 for using the money short term.

By doing the cash advance he could gain $50,000 in real estate equity. The key is to pay off the cards from the proceeds of the mortgage and put them back in the drawer. You decide, is it a good trade to pay $1000 in extra interest to gain $50,000 in equity? We think it is. As investors, we (and you) need to be creative and keep our minds open to all the possibilities available to us. Then we should proceed with wisdom and caution in using these tools.