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Credit Card Hustles:
Entrepreneurial Payoffs and Successful Business Start-Ups

Art of The Deal!

Gary Phillips is a 27-year old real estate broker in Orlando, Florida. Raised in a white, middle-class family in suburban Ohio, he attended an expensive, private university in Miami. Phillips' education was primarily funded by an athletic scholarship and he remains an avid "booster" of this nationally renown athletic program. In fact, he utilizes these university networks whenever possible in expanding his portfolio of potential investors. Even so, Gary confided that his social and economic ambitions would have been hindered by plying his trade in the intensely competitive market of south Florida. Instead, he joined a real estate company in booming central Florida, near Walt Disney World. As a full-time salesman, with a steady income of real estate commissions, he quickly recognized the growth of new investment opportunities-- especially bankrupt and foreclosed properties. For Gary Phillips, who aspires to become a real estate magnate like his hero Donald Trump, the lack of investment capital is his biggest obstacle to acquiring wealth. And, like The Donald, he relies on high interest, borrowed money to "make the deal" which often entails cash advances of tens of thousands of dollars on his "string" of Gold Master Cards.

Exposed to the affluent lifestyles of his college classmates and wealth of local alumni, Gary is obsessed with "making it" in U.S. society. Emphasizing that the "winners" of the American Dream are distinguished by their individual motivation and talent, he epitomizes the narcissist attitudes of the Yuppie wannabies of the go-go Eighties. In fact, Phillips often hosts evenings with friends and family members that feature scintillating rounds of "Trump, The Game" which mirror his view of the cutthroat competition that characterizes the path to business success. For Gary and his late twenty-something friends, "Monopoly" is too passé without the quick strike opportunities and duplicitous deal making that define the Age of Leverage. Not surprisingly, his personal goals are unencumbered with moral concerns or personal empathy towards those whose often dire situations result in fire sale prices. Rather, Phillips' business philosophy is simply to make as much money as possible with the least amount of invested capital. A few examples illustrate the crucial role of the credit card "hustle" in launching his real estate empire.

Like credit card and finance companies that are perpetually "trolling" for debtors, Gary constantly scours the local tax rolls for out-of-state property owners who may be experiencing economic difficulties. He sends out hundreds of letters per year with unsolicited "low ball" offers in the hope of "hooking" a highly "motivated" seller that desperately needs money--immediately if not yesterday. Phillips estimates that the response rate to his mailings is less than 1 percent and, from this small group, he negotiates with the few willing to accept a cash price on his terms. After striking "gold," such as the purchase of a $75,000 duplex for $49,000, Gary simply takes cash advances from his credit cards in increments of $5,000 or $10,000; the credit card interest costs of about $600 per month are tax deductible as a business expense. After the deal is consummated, Phillips seeks conventional bank financing (70 percent to 85 percent of market value) from his carefully cultivated network of "friendly" financial loan officers (usually low, variable rate mortgages) and is often able to "cash out" a few thousand dollars in the process. He then attempts to sell or "flip" them at a 10 to 15 percent discount to his list of investors and swiftly realize a substantial profit. If his target price is not tendered, Gary simply fixes up the property and generates a new stream of rental income.

Another favorite strategy of Phillips is to constantly make low bids (at least 20 percent below market value) on bankrupt or foreclosed properties whose mortgages are insured by the federal government. On a $50,000 house or condominium, the down payment and closing costs often total less than $2,500 (a modest cash advance from his credit cards) with the respective government agency insuring the mortgage (FHA, VA, HUD). In these cases, since Phillips represents both the buyer and seller, his realtor commission occasionally exceeds the cash requirements of the transaction. Gary then resells the property for an immediate profit--with effectively no cash outlay--or simply rents the house and creates another source of income. Today, he owns over 15 residential rentals and offers a rental management service (tenant screening, collections, repairs/renovations) for past and present clients. In addition, Phillips' financial success enabled him to quit his sales position and open his own real estate office. Although rental income and management fees augment his sales commissions by at least 35-50 percent, Phillips expects to become even more dependent on his bank cards (over $70,000 in combined credit "lines") until his future sales "team" can generate enough commissions to pay for his new overhead expenses.

My Credit Cards Helped Me Become Financially Independent

Eugene Bergman is a 45 year-old financial consultant--for himself. Bergman's ambitious personal goals were largely shaped by the social expectations of his upper income, New England family which includes his father, a doctor, and several uncles who are successful professionals and businessmen. A graduate of a local private university, he joined a large brokerage house on Wall Street in the 1973. After a moderately successful career as a stock trader, Bergman was unexpectedly fired in 1985 following a dispute with his supervisor. At first, Eugene's family supported his decision to leave Wall Street until they realized that his short-term goals violated their central tenets of success: hard work and personal sacrifice. Instead, Bergman chose an alternative route that avoided the high pressure and questionable business practices of Wall Street yet potentially offered the six-figure rewards of a stock trader's salary. He decided to play the stock market and, as luck would have it, during the Bull market of the 1980s.

Eugene collected his lump-sum severance pay and, with his savings, reaped the rewards of investing in the stock market during this enormously profitable era of the casino economy. Based on his prior experience and contacts on the "Street," this was a fortuitous time as nearly everyone was making impressive profits from the rising financial tide of the stock market. Of course, the key is to invest as much as possible in order to generate the largest possible trading profits and Eugene shrewdly multiplied his investment clout through complicated stock "calls" and "options." Without a source of income, he turned to credit cards to finance his living expenses. Upon losing his job, however, Bergman did not have a credit card (only American Express) and immediately obtained three bank credit cards--all while unemployed. Initially, Eugene used his unemployment checks to make his minimum credit card payments and then later diverted a small portion of his trading profits to meet his credit card obligations.

By the end of the decade, Bergman had become a wealthy man. In fact, he had shifted his assets into low risk, Mutual Funds before Black Monday when the sharp decline in the stock market signaled the end of the Bull run. Today, ten years after his involuntary unemployment, Eugene's investment income affords him a very comfortable standard of living in an affluent New York suburb. Although justifying his lifestyle as a reward for shrewd and cautious financial "planning," he remarked that without credit cards, "who knows what my life would be like now?"

The 'Hollywood Shuffle" on Credit Cards

One of the more creative and eventually lucrative "hustles" is the independently produced film, "The Clerk." Written, produced, directed, and edited by Kevin "Silent Bob" Smith in 1994, this quirky, movie was "shot" in black and white at a New Jersey convenience store with his 'twenty something' friends as actors. After its completion, The Clerk was nationally distributed by Miramax for Smith's View Askew Productions and became a surprising cinematic and commercial success. Of course, the use of credit cards to purchase film supplies is hardly a novel strategy of aspiring movie directors a la Spike Lee and Robert Townsend in their first movies.

However, some of the ways that Smith used his credit cards are worthy of special commendation. For instance, he enrolled at The New School for Social Research in New York City in order to be eligible for Kodak's special student discount. After receiving his university identification card, Smith purchased huge quantities of black and white film on his personal credit cards. Smith then withdrew from the university and, since he had charged the tuition on his MasterCard, received a full refund. Hence, the credit card hustle yielded him a large quantity of inexpensive film that was necessary to make the movie and maybe some frequent flier miles or a cash-back rebate, too! Today, flush from the profits and professional acclaim of The Clerk, Smith received a studio contract for financing the production and marketing of his second movie: "Mall Rats." This time we can be certain that the choice of film stock (color rather than black and white) was based on artistic rather than economic reasons!



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