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- 100% online application—no in-person appraisal needed
- Pre-qualify in minutes; funding in as few as 5 days
- Borrow up to $400,000 with flexible terms
- Soft credit check—no impact on your score
Why a HELOC is a Game Changer for Investors
If you’re looking to expand your real estate portfolio without draining your savings, a Home Equity Line of Credit (HELOC) might be the perfect tool. HELOCs offer flexible, low-cost funding that can help you seize investment opportunities quickly. Unlike traditional mortgages or hard money loans, HELOCs let you access your home equity as a revolving line of credit, giving you control over when and how much you borrow.
A well-strategized HELOC can supercharge your investing, offering fast capital, low interest rates, and minimal closing costs. In this guide, we’ll break down how HELOCs work, their advantages, potential risks, and strategies for using them to fund your next property.
Ready to start building your portfolio? Get pre-qualified for a HELOC today.
How a HELOC Works for Real Estate Investors
What is a HELOC?
A HELOC is a revolving line of credit secured by the equity in your property. Unlike a traditional mortgage that provides a lump sum, a HELOC lets you borrow as needed, up to a pre-approved limit, and pay interest only on the amount you use.
Key Features of a HELOC:
- Revolving Credit: Borrow, repay, and re-borrow as needed.
- Low Initial Costs: Minimal upfront fees compared to traditional loans.
- Flexible Repayment: Interest-only options during the draw period.
- Potential Tax Benefits: Interest may be tax-deductible if used for investment purposes (consult a tax advisor).
- Fast Access to Funds: Funds typically available in a few days to weeks.
Typical HELOC Terms:
- 5-10 year draw period followed by a 10-20 year repayment term.
- Variable interest rates, often lower than personal loans or credit cards.
- Loan-to-Value (LTV) ratio requirements, typically 70-85%.
Strategies for Using a HELOC to Buy Your Next Property
1. Fund a Down Payment or Closing Costs
Using a HELOC for a down payment on a rental property can free up your cash reserves for other investments. This is particularly useful if you’re using a Debt Service Coverage Ratio (DSCR) loan or bank statement loan that requires a substantial down payment.
2. BRRRR Strategy (Buy, Rehab, Rent, Refinance, Repeat)
A HELOC can be an ideal funding source for the BRRRR method. Use your HELOC to purchase and renovate the property, then refinance into a traditional or DSCR loan once it’s stabilized to pay off the HELOC and unlock more capital.
3. Bridge Financing
Need fast access to capital for a time-sensitive deal? A HELOC can act as a short-term bridge loan, allowing you to quickly secure a property before arranging long-term financing.
4. Portfolio Scaling
Once you’ve established a cash-flowing portfolio, you can use a HELOC to continuously recycle equity for new acquisitions, minimizing your out-of-pocket costs.
5. Funding Value-Add Improvements
Increase your property’s value and cash flow by using a HELOC for renovations or upgrades. This approach can boost your long-term returns and rental income.
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Pros:
- Low Interest Rates: Generally lower than hard money or private loans.
- Flexible Borrowing: Use funds as needed, not as a lump sum.
- Revolving Credit: Repay and reuse without reapplying.
- Potential Tax Benefits: Interest may be tax-deductible.
Cons:
- Variable Rates: Payments can increase if interest rates rise.
- Risk of Foreclosure: Your primary residence or investment property is on the line.
- Potential Overleveraging: Easy access to funds can lead to overextending your finances.
Real-World Example: Scaling with a HELOC
Imagine Sarah, a real estate investor, used a $100,000 HELOC to purchase and renovate a distressed rental property. After six months, she refinanced into a long-term DSCR loan, paid off the HELOC, and repeated the process. Over five years, Sarah scaled her portfolio from one to seven properties using this strategy, maximizing her leverage and returns.
FAQs About Using a HELOC for Real Estate Investing
Can I use a HELOC on an investment property?
Yes, some lenders offer HELOCs specifically for investment properties, though the terms may be stricter than owner-occupied HELOCs.
Are HELOC interest payments tax-deductible?
In some cases, yes, if the funds are used for business or investment purposes. Consult a tax advisor for personalized guidance.
How much equity do I need to qualify for a HELOC?
Most lenders require at least 15-30% equity in your property, with maximum LTVs typically around 70-85
Ready to Fund Your Next Deal?
Whether you’re a first-time investor or a seasoned pro, using a HELOC can be a powerful way to scale your portfolio. Ready to get started? Connect with a HELOC specialist today and unlock the equity in your property.
Read Next
- How to Use a HELOC to Scale Your Rental Portfolio Fast
- BRRRR Investing: Step-by-Step Guide to Wealth Building
- Leveraging HELOCs for Real Estate Investment Success
Get the most from your investments with the right financing tools. Start building your real estate empire today!
Unlock Your Home Equity with Figure
- 100% online application—no in-person appraisal needed
- Pre-qualify in minutes; funding in as few as 5 days
- Borrow up to $400,000 with flexible terms
- Soft credit check—no impact on your score
Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
