How to Use a HELOC to Buy Your Next Rental Property

Want to buy your next rental property—but don’t have the cash for a down payment or rehab? You might be sitting on the solution.

A HELOC (Home Equity Line of Credit) lets you tap into your home’s built-up equity to fund investment deals—without selling, refinancing, or draining your savings.

In this guide, you’ll learn exactly how to use a HELOC to buy rental property, the pros and cons, and best practices for maximizing returns while managing risk.

What Is a HELOC?

A HELOC, or Home Equity Line of Credit, is a revolving credit line secured by the equity in your primary residence or investment property. It functions like a credit card with:

• A credit limit (based on equity and LTV)
  
• A draw period (usually 5–10 years)
  
• A repayment period (typically 10–20 years)
  
• Variable interest rates that you only pay on what you borrow
  

Unlike a cash-out refinance, a HELOC doesn’t replace your current mortgage—it’s a second position loan that gives you flexible access to funds.

Why Use a HELOC for Real Estate Investing?

• Fast access to capital for down payments or full purchases
  
• Interest-only payments during the draw period = increased cash flow
  
• No disruption to your existing low mortgage rate
  
• Can be reused as you repay and redeploy
  
• Works well for BRRRR, rehabs, or short-term financing needs
  

A HELOC turns your home’s equity into a tool for growing your rental portfolio.

How Much Can You Borrow With a HELOC?

Most lenders allow up to 85–90% Combined Loan-to-Value (CLTV) on your home.

Example:

• Home value: $400,000
  
• Current mortgage balance: $250,000
  
• Max CLTV: 85% of $400K = $340,000
  
• Available HELOC: $340K – $250K = $90,000
  

You can borrow this amount and use it however you need—no restrictions if it’s from your primary home.

3 Smart Ways to Use a HELOC to Buy Rentals

✅ 1. Use It for the Down Payment on a Rental Property

Need 20–25% down for a DSCR or conventional loan? A HELOC gives you fast access to funds without liquidating other assets.

Strategy:

• Use HELOC for down payment
  
• Use a DSCR loan for the rest
  
• Refinance later to pay off the HELOC
  

✅ 2. Fund a Full Cash Purchase for a BRRRR Deal

If the HELOC limit is high enough, you can buy a property in cash—then refinance to pull the money back out.

Strategy:

• Use HELOC to buy + rehab
  
• Rent it out
  
• Refinance with a DSCR loan
  
• Pay back the HELOC and repeat
  

This is a perfect BRRRR model for investors with strong home equity.

✅ 3. Cover Rehab or Holding Costs

Already have a deal under contract but need capital for renovations or cash reserves?

HELOCs are ideal for:

• Light to moderate rehab work
  
• Paying contractors or vendors
  
• Holding costs during the renovation or lease-up phase
  

📌 Pro Tip: Only draw what you need—interest is charged only on the amount borrowed.

HELOC Requirements for Investors

To qualify for a HELOC, you’ll typically need:

Some lenders also offer HELOCs on investment properties, though with stricter terms and lower CLTV.

Pros and Cons of Using a HELOC to Buy Rentals

✅ Pros:

• Access capital without selling or refinancing
  
• Use funds as needed
  
• Interest-only during draw period
  
• Can fund multiple deals or uses
  
• Reuse the line as you repay it
  

❌ Cons:

• Variable interest rates can rise over time
  
• Your home (or asset) is collateral
  
• Risk of overleveraging if not managed carefully
  
• Not all lenders allow HELOC use for investment purposes
  

Is a HELOC Better Than a Cash-Out Refinance?

If you have a low mortgage rate you want to keep, a HELOC may be the smarter option.

Final Thoughts

A HELOC is one of the most flexible and accessible tools in a real estate investor’s toolkit. Whether you’re funding a down payment, a full BRRRR deal, or a short-term rehab, tapping into your home equity can unlock the capital you need to scale.

Just remember: a HELOC is a powerful form of leverage. Use it wisely, pair it with the right investment strategy, and it can accelerate your path to financial freedom.