rynocity

This is exactly the kind of thinking that resulted in the financial meltdown of 2008. People just thought real estate would keep going up forever and bought property they couldn't afford hoping to flip it.

sgideons

The problem with any scheme that doesn't involve bankruptcy (AND the ones that do) is that from any reasonable point of view MS is ALREADY insanely lucrative: if you're buying at 1 cent per dollar (high) and redeeming at 2 cents per dollar (low) every month, then you're already invested in the best vehicle in the western world. Return on invested capital is -infinite- since you're playing with the house's money. $10k per month, which is small change for many here, nets you minimum $1,200 per year, so $12k over the 10 year bankruptcy cooling-off period.

So take someone with a 100k total credit limit. At 10k per month (I know, low, but it's a round number) it'll take 10 months to turn it into cash, average balance 50k means over those 10 months they'll pay ~$5k in minimum monthly payments.

In month 11 they buy a $100k house with the cash.

Then for propriety's sake they wait 26 months, making only the minimum payments on the $100k in credit card debt (out of current income, presumably). That'll cost an additional $26k (my minimum payments are typically about 1% of my balances).

In month 37, they declare bankruptcy and successfully have 100% of the credit card debt discharged.

They now have an asset worth $100k, free and clear. But they've paid $31k in interest, and given up 26 months + 10 years in manufactured spend. 146 months, at $100 per month, adds another $14.6k.

So you'd pay $45.6k for a $100k asset.

Now, these numbers are conservative and many of us have much bigger monthly numbers than this. But that actually strengthens the point: the better you are at MS the MORE you pay in opportunity cost to forego those months of MS.

Andy2

Your well reasoned and impressively analytical post is why this will soon end now that it is catching on with more people. It is too easy to earn cash and it will ultimately be easy to shut down. I will be sorry to see it go.

I can never get my costs to 1 cent though. When I calculate liquidation costs and car costs at 56 cents per mile, I always get 1.5 cents, which makes it a great deal on 5% cards, but marginal on everything else.

newbynewbynew

I just read this whole thread and the most fascinating thing is KNOWING who truly understands MS and those who don't but think they do.

LivelyFL

Single person can exclude $250K of capital gains from income; married $500K. You do not have to reinvest proceeds in another home.

horseymen

In the spirit of sharing, I kinda did this 4-5 years ago. I had a rather large charge-off on two of my three reports, so I could not get a traditional mortgage. Our house was at 10% interest (back when you could get loans like that!) and our payment was like $2000 a month.

Pentagon Federal lets you do a home equity loan with JUST (at least at the time) an Equifax pull, which was my "good" report.

I used manufactured spending techniques to pay off $175,000 on my house (after getting approved for a home equity loan up to 80%) - and then took out 80% (140kish) over 20 years at 4.99%. Took my payment down to 1400 or so even with a 20 year payment - and I had 35k that I bounced around on 0% for a couple of years before I paid it off.

I think it's one of the smartest things I've ever done. Now that I have "good" credit, we use that house as a rental and have enough paid off to where it cashflows exceptionally well.

Of course, had Pentagon denied the loan, it might not have been as smart, but their underwriting for a home equity loan was night and day easier than a mortgage.

Sunburn644

YES. This is somewhat like what I did with my student loans. I got an 0% BT , 0% interest offer for 18 months and put about 8K worth of student Loans on it and then started paying it down ( and then paid it off) over the course of a year. I think I paid about ~$200 total in interest on my student loans, the right C offers at the right time were very helpful. You definitely did a much better job but it's a way to MS that saves you paying interest.

MsArbi

Deleted.

MasterCharge

^

rossrr

I have been shuffling some CC debt around for many months - it makes the MS process easier to have actual funds to move around. I decided the debt had to go, so I got a couple of 0% apr cards and shuffled the money to those cards. Now, I'm building up my savings account with a modest apr using MS and CB. Before the 0% runs out, I will pay everythinget off in full.

I love the idea about managing student loans. Mine are at 6.xx% and are costing dollars a day in interest! That will be my next mountain to tackle; hopefulky, fully funded with MS.

AlohaDaveKennedy

Retire to a place where you can walk or take public transportation to MS all day and your transportation costs go way down. Play your cards right and you can retire on MS. Try doing that with Social Security!

FTR 787

not sure why my post was deleted. I genuinely am coming around to the idea of having a closed off forum here at FT for MS... precisely so that we can discuss, actual, next level theoretical MS like this thread.

vxmike

Except this thread has nothing to do with MS. It's about good old fashioned bankruptcy fraud that people have been doing since before the internet even become a big thing. There are folks who do it every 7-10 years.

The fact this process is so easy to entertain and actually pull off makes me wish we had debtors prisons in the US. The prevalence of fraud just makes it that much more difficult for honest people to conduct regular business and transactions.

babalooie21204

as much as I didn't want to post.... I've bought an purchased several homes over the last 5 months. I have yet to find a bank or seller/title company that would allow purchase with a CC. Believe me i've asked, however, if you are in the middle of the country where homes are 10-50k you might be able to find someone

FTaddict

Those who're saying its a crime/fraud or whatever, it is NOT. Lets be honest that there is a loophole in the system. A lot of people do it all the time. Its just that majority of the people are scared of doing this, in the same way majority of people are scared of applying for credit cards (prolly bcoz of all the myths sorrounding CCs as if it is some kind of monster).

If you play it right, there are definitely ways of doing it. The buying and ebay selling seems like a reasonable approach to me. Also I think it is not worth doing if you are only pocketing 75-100k. You will be better off getting some sign up bonuses and going hard on MS for a couple of years. Anything above 100k makes sense.

Also, you're not ruining your credit score for 10 years as someone else pointed. Its only 7 years I beleive in Chapter 7 Bankruptcy. Also, this could be done by only the lower income spouse but I wonder what are the implications if you file your taxes jointly. If you start filing taxes separately for a couple of years and then file for BK, will the other spouse get impacted of the BK?

And who says you need to pay that much interest for 26 months? Just get a few cards like Chase Slat/Citi Preferred/Simplicity at 0% interest for 18 months and you can save a lot in interest.