Mortgages & Creative Financing

How to Use a HELOC to Buy Real Estate

Expertise: Landlording & Rental Properties, Personal Development, Real Estate News & Commentary, Business Management, Flipping Houses, Mortgages & Creative Financing, Real Estate Deal Analysis & Advice, Real Estate Wholesaling, Personal Finance, Real Estate Marketing, AskBP, Real Estate Investing Basics
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Small House and Piggy Bank with Stacks of Hundred Dollar Bills Isolated on a White Background

Using a home equity line of credit, popularly known as a HELOC, is one of my favorite creative strategies for investing in real estate.

How would you like to purchase property using no money out of your bank account? It might sound like a late-night scam, but I assure you it’s not!

Let’s say you already own property. The difference between what it’s worth now and what you owe on it is called equity. Normally, in order to access that equity, you’d have to sell the property first.

An alternative way to access that equity, however, is a HELOC. This is a loan—usually a second mortgage—added on top of your existing mortgage.

A HELOC kind of acts like a gigantic credit card. It allows you access to a big line of credit, but you only pay when you're using it. And the interest rate is actually way lower than a credit card—sometimes under 5 percent. (Something to note, however, is that the interest rate is often variable, meaning it goes up and down.)

Here’s an example:

An investor purchases a home for $100,000 with an $80,000 loan. So far, he or she has paid down the loan to $60,000. Meanwhile, the house has appreciated to $120,000.

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Now the owner can take out a HELOC to tap into up to 90 percent of the current value of the home. So, 90% of $120,000 is $108,000. Subtract $60,000, representing the amount still owed to the bank. The owner can then use this $48,000 line of credit for a down payment on another property.

Pros and Cons of HELOCs

Pros:

  • Can use this simple lending tool to help you "find money" to do more real estate deals
  • Can tap into the same amount of money you’d have if you sold a property that had appreciated, without actually selling
  • Can avoid paying real estate agent, closing costs, etc., which would be required if you sold the property in order to invest in something else
  • It’s a cheap financing option in terms of interest rates and closing costs

Cons:

  • Will cost you the equity in the original property
  • Comes with an adjustable (read: unpredictable) interest rate

Watch the video above to learn more about the ways in which you can use a HELOC to expand your investment portfolio!

What else would you like to know about HELOCs? Would you ever use this strategy?

Comment below. 

Brandon Turner is an active real estate investor, entrepreneur, writer, and co-host of the BiggerPockets Podcast. He is a nationally recognized leader in the real estate education space and has tau...
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    George Wengler Investor from North Ridgeville, Ohio
    Replied over 1 year ago
    I did exactly this to start my real estate investing. My GF and I bought a foreclosure for $80k. She had all cash, I had only $20k in cash, but access to about $50k in a HELOC on my current home. After repairs to the property and getting a renter in there, I got financing through a local bank, bought out my partner, and paid off the HELOC. So I got a cash-flowing property, and still have access to the HELOC to do it over again. It’s a good strategy for those investors that have equity in their current home but are light on cash.
    Navid Aberg from Phila, Pennsylvania
    Replied over 1 year ago
    Can you give more details on this? You bought the home in cash plus your credit line for a total of $80k, then how does the bank step in and allow you to pay your HELOC back?
    James Gardner Rental Property Investor from Port Saint Lucie, FL
    Replied over 1 year ago
    When you purchased the house, did you pay cash, and if so, what type of loan did you use to pull the money out of the new property?
    George Wengler Investor from North Ridgeville, Ohio
    Replied over 1 year ago
    Yes, paid cash, It was a foreclosure. After seasoning for 6 months I got a mortgage through a local credit union. It’s a regular fannie mae mortgage. Local credit unions are more willing to work with investors. I had to call around to several local banks/credit unions to find one willing to work with me.
    Sujoy Ganguly
    Replied over 1 year ago
    Hi George, if you don’t mind sharing: do you happen to have a list of good HELOC providers? I am talking to chase but am partial to credit unions since I’ve had a great experience working with them. I am in Austin. Thanks!
    George Wengler Investor from North Ridgeville, Ohio
    Replied over 1 year ago
    I don’t have a list. I just started calling around to my local credit unions. Some will only do HELOCs on your principal residence. Keep calling around until you find a local lender willing to work with you. They are out there!
    Kevin Kim New to Real Estate from chicago, IL
    Replied 4 months ago
    hey @George Wengler. Quick question can you do heloc if you dont have a house? I dont have any home yet.
    Tammy Vitale Investor from Lusby, Maryland
    Replied over 1 year ago
    where can you get 90% on a HELOC? Please tell me quick!
    Bryan Sims
    Replied over 1 year ago
    BBVA Compass Bank
    Reginald Wilkes from Virginia Beach, Virginia
    Replied over 1 year ago
    I have HELOC via Navy Federal @95% for primary residence. I haven’t seen any other bank top that
    Pradeepan Venukanthan from San Jose, CA
    Replied over 1 year ago
    Issue with Navy federal is you need to be a member. To be a member of the credit union, you must be a veteran, have current ties to the armed forces, Department of Defense, or National Guard, or have an immediate family member who has a membership with Navy Federal – Most of us cant satisfy this requirement 🙁 But Andrews federal doesnt have any such requirement. Send me a PM if you need my help to connect with someone.
    Namit Raisurana Investor from San Carlos, California
    Replied 3 months ago
    Hey. I am looking for 500k+ heloc. Do you know if any lender provides that? I have enough equity on my primary property
    Jeff Healy Investor from Mount Pleasant, South Carolina
    Replied over 1 year ago
    Tower Federal Credit Union in MD offers a HELOC where you can access 100% of your equity!
    Steven E Hedke from Grand Rapids, MI
    Replied over 1 year ago
    My wife and just got 90% HELOC at Huntington Bank in Michigan. No closing fees. No appraisal cost.
    Ian Gilmore from Newburgh, IN
    Replied over 1 year ago
    5/3rd gave me 90%
    Pradeepan Venukanthan from San Jose, CA
    Replied over 1 year ago
    Hi Tammy- I just did HELOC with Andrews federal. They do 95% at 5.5 interest rate and promotional interest of 1.9% for first 6 months. They have been amazing so far
    Kevin Kim New to Real Estate from chicago, IL
    Replied 4 months ago
    guy do you need a home first?
    Will Zena Rental Property Investor from Estero, FL
    Replied over 1 year ago
    I spoke to them today at Andrews Federal and they still have the same offer. I may take advantage. Thanks!
    Tom Mitchell from Tahoe City, California
    Replied over 1 year ago
    It would be wise to point out the risks in an article such as this. You mustn’t forget that this is exactly what people did in 2005. Using a HELOC because you have no cash, as your article implies, is a very risky strategy. You’d better be right on a number of variables, because if one or more are wrong, losses can be large. Many were wiped out.
    Ryan Fong Investor from Redwood City, CA
    Replied over 1 year ago
    Can a HELOC be taken on a rental property? I thought it only applies to the primary residence.
    Shaun M. Rental Property Investor from Gunnison, CO
    Replied over 1 year ago
    PenFed and Navy Credit Union both do HELOCs on investment property. About 6 months ago, PenFed had the better rates. That may have changed.
    Reginald Wilkes from Virginia Beach, Virginia
    Replied over 1 year ago
    Up to what percentage of the LTV does penfed/NavyFed give for HELOC on investment property?
    Bob Brissie Investor from Plano, Texas
    Replied over 1 year ago
    I think this varies by State. In Texas, where I live for example, a HELOC cannot be had on an investment property,only on the primary residence. The equity is capped at 50%, although there is legislation either completed or being implemented that allows up to 75% of home value. I use a HELOC as the article states, but using my primary residence. Other loans are a ” cash out” type- higher rates but far better than hard money or other alternatives.
    Christopher J. New to Real Estate from Charlotte, NC
    Replied over 1 year ago
    Depending on the bank the amount may vary. My bank will only do 60% on investment properties.
    George Wengler Investor from North Ridgeville, Ohio
    Replied over 1 year ago
    That 90% would be your total LTV (including the HELOC). My credit union will lend 85% LTV at their best rates. A 90% LTV has a slightly higher interest rate. They don’t require an appraisal, they just go off the county’s assessed value, which is definitely less than market value, but I got enough of a credit line to do what I need.
    Tom B.
    Replied over 1 year ago
    What do you think about using it for a 16k-25k downpayment on a rental unit and then aggressively paying off the HELOC like a car loan for 2-3 years? If it cashflows $200-300 and I can add another $300-$500 by my income I could have it paid off in 2-3 years. I know people say “just brrrr it” but don’t have the team, resources or time for a rehab right now.
    Jeffrey Grieshop New to Real Estate from Coldwater, OH
    Replied over 1 year ago
    paying down debt can never be a bad option, it may not be the one with the highest ROI but it surely is not the lowest 🙂
    Joseph Walsh from Brookfield, Wisconsin
    Replied over 1 year ago
    THat’s my plan B if the ARV ends up lower than I hope, or it takes longer to get to where I want it for the refi. Which underscores the importance of cash flow to me.
    Anthony Little from Saint Petersburg, Florida
    Replied over 1 year ago
    I would love to have access to some names of companies offering 90% or even 85% LTV HELOC’s with favorable terms and interest rates. Please do tell if anyone has information.
    Pradeepan Venukanthan from San Jose, CA
    Replied over 1 year ago
    Andrews federal. IM me if you need me to connect with someone. They do 95% at amazing rates
    Amy M. Professional from Livonia, Michigan
    Replied over 1 year ago
    Community Alliance Credit Union in MI does 100% HELOC. So far so good on our experience with them.
    Nathan Justus
    Replied over 1 year ago
    I love the timing of this post. I just signed the docs for a HELOC on my primary this week, and also signed for a personal line of credit both with the same bank. Now I have access to over 150K of capital that was stuck in my walls. Just need to make sure I can refi out and pay back the HELOC each time. Rinse and repeat.
    Jenny Harrison
    Replied about 1 year ago
    Hi Nathan, My BF and I are planning on doing the same strategy- buying a rental property, refinancing it, then paying off the HELOC, and repeat the process. Have you had experience with this yet? I'd love to know if it's working out as planned. Thank you.
    Navid Aberg from Phila, Pennsylvania
    Replied over 1 year ago
    What are your plans for that capital?
    Joseph Walsh from Brookfield, Wisconsin
    Replied over 1 year ago
    I am looking to do this right now! Question though, I am debating between the following: In all cases, I intend to BRRRR the rental property at some point and get my “cash in” back out so I can pay back/off/down the equity borrowed: Renew my current HELOC, since my equity is substantially more. pros – easiest/most flexible, can pay down/”off” until next one, doesn’t permanently affect mortgage payment on existing house. cons – variable rate (eventually), new tax law has restrictions on HELOC interest deductions. Just do a cash out refi into a new mortgage and put the money in an account, paying off /eliminating the existing HELOC pros – best rate, fixed mortgage, easy to do with existing mortgage company cons – permanently adds to monthly payment of existing home, which also complicates debt service calculations, since I’ll be adding a monthly payment for ALL the money, even if I only use SOME of it on property x. Refi current mortgage, payoff/remove exisiting HELOC, and take a second cash-out 2nd mortage with the same bank as the primary. pros – similar to cash out refi, fixed rate, ability to “eventually” pay it off and house payment remains the same. cons – higher rates on second mortgages, increases house payment longer term, since won’t pay it off until I am “done” reusing the cash. right now I am leaning toward just doing a cashout refi and have a bundle of money to work with. When not using it, I can put into investment accounts and probably do better than the ~4%-5% rate I’ll be paying on it, even with fees in the current market. but the HELOC re-up is a close second. Thoughts? 90% is pretty high for most. Usually if you have a longer ownership period AND top tier credit. Also, for the risk adverse, 80% is probably more palatable, you could probably sell in a pinch if you had to.
    Susan Maneck Investor from Jackson, Mississippi
    Replied over 1 year ago
    I’ve used HELOCs to buy most of my properties. Some banks like WF will give you first place HELOCs on rentals but you have to have owned it for a year. I paid cash for my first property then got a HELOC to buy my second one, and so on and so forth. To keep the interest rates down I pay them off each year, rotating them like i might do with my credit card balance transfers. Once it is paid off, I call WF and ask for another teaser rate. Financing this way has been cheaper than conventional mortgages.
    James Gardner Rental Property Investor from Port Saint Lucie, FL
    Replied over 1 year ago
    Who did you use to refinance the payed off rental property?
    Matt Kovach from Bloomington, Indiana
    Replied over 1 year ago
    Has anyone had difficulty getting a mortgage for a new property if you are planning to use an HELOC for a down payment? I do not have enough in my HELOC for an entire purchase, but the banks I have talked to (and even hard money lenders) do not want to see debt being used to purchase more debt (their words).
    Matt Kovach from Bloomington, Indiana
    Replied over 1 year ago
    Awesome. Thank you so much Venkat and Pradeepan for the insight.
    Pradeepan Venukanthan from San Jose, CA
    Replied over 1 year ago
    Yes it is considered as credit card debt( revolving credit). So it will impact your utilization and debt/income ratios.. But non traditional banks might allow as down payment if used for investment properties. You just need to find the right lender who will work with you on this- its not impossible.
    Venkat Varad from Littleton, Colorado
    Replied over 1 year ago
    Sorry to hear that, I never had that issue, I pay 25% down on investment , that comes from Heloc, My lenders typically see what resources I have to pay off the loans. If you are able to back it up, it should not be an issue. Best of luck.
    Navid Aberg from Phila, Pennsylvania
    Replied over 1 year ago
    What do they want to see as being “able to back it up?”
    Venkat Varad from Littleton, Colorado
    Replied over 1 year ago
    This is 100% true, My story is same as Susan Maneck stated above. Anything left on rent after mortgage or any singly extra penny, pay down the heloc, then go for next investment. You got to have financial discipline to payoff, If you are in this forum and reading this, then you have that, just plan and execute well. I have been doing this for 15 years for now. U.S. bank and many others offer 90% LTV. Just visit bank websites or call them. There are many.
    Navid Aberg from Phila, Pennsylvania
    Replied over 1 year ago
    What cost houses are you purchasing? And what amount down are you putting using the HELOC as your DP? Also, how quickly are you able to pay them off? Just looking to get some numbers!
    Pradeepan Venukanthan from San Jose, CA
    Replied over 1 year ago
    I agree with this strategy even though no strategy is perfect. I just did 95% HELOC for my primary residence with Andrews federal. I am using the funds to as a downpayment to purchase other properties and even a business! I do have funds but this will give me flexibility. This strategy works for those who are responsible and knows what they are doing. In my opinion the right way to do it is to keep paying up the balance faster and once it builds up use the funds again for more deals- rinse and repeat. However that said since this is like a credit card whenever u wipe this out your credit card utilization goes for a toss and it impacted by credit score 🙁 As long as you have strong credit scores I think it should be ok. I have a question – If I use the funds from HELOC to purchase an investment property can I claim the interest as a business expense( through an LLC?) even though as per new tax laws we cant claim HELOC interest rates as tax deductions if not used for certain specific purpose such as to improve the primary house
    Navid Aberg from Phila, Pennsylvania
    Replied over 1 year ago
    I’m lost on this whole thing! Let’s say you’re using a $50k HELOC to pay 25% down on a $200k home. Now you have to make payments to your HELOC and to your mortgage? And hope you can pay them both while hopefully paying the HELOC off rapidly?
    Mike Hatch from Pittsburgh, Pennsylvania
    Replied over 1 year ago
    Thanks, Brandon, for this article. HELOCs are great tools to accomplish so much, as long as you are disciplined. I have been using Harj Gill’s SpeedEquity system to help us utilize our HELOC to pay off our primary mortgage (15 yr) in a little over 2 years! I’m planning to use the same system to utilize that HELOC for future investments. If you haven’t read his book, check out Harj Gill’s, “Own Your Home Years Sooner and Retire Debt Free.” It explains everything.
    Reggie Wirjadi from San Francisco, CA
    Replied over 1 year ago
    Great timing on this article as I’m just about to contact lenders to get a HELOC. My question is, if you get a HELOC is there any time limit on when to use it by? At this point I want to get a HELOC to have funds IN CASE I find a good deal. But if I don’t and I never use it, what happens?
    Kevin Moules Rental Property Investor from Turlock, CA
    Replied over 1 year ago
    Reggie, I got a HELOC on my primary residence last year through chase. I have 10 years to use the loan and then the next 20 to pay it back. This is unless I decide to refi the loan in the next 10 years which at that point start the clock again. The money just sits in a account. I don’t make any payments on it. I believe they are charging me $50/yr to hold the line open. Not a bad deal to have money just sitting there. Good luck!
    Maria Marrero Real Estate Agent from Port Jefferson Station, NY
    Replied over 1 year ago
    I got a HELOC from Bethpage FCU and you must take a minimum of $25k for the first year, interest was set at 2.99% for the first year, then variable after that. I did not find a property I wanted to purchase this year so Here’s what I did to make up some of the interest: I put the $25k in a money market acct that was giving me 1.98% interest, not too bad since it covered some of the the interest I was paying. This HELOC its interest only years 1-10. I do not plan to keep a balance for long. I spoke with my banker yesterday since I found a property and will be taking the whole $100k and she said it’ll be $467.12 per month in interest, give or take based on interests rates & based on amount left since I am going to use most of the rental income to pay off the loan.
    Heather U.
    Replied over 1 year ago
    Reggie, we did as you mention. We took Heloc out a year before we actually used it. It just sat there until we drew on it. I think you need to ask the bank what the terms of the loan are. Can probably vary by bank.
    Heather U.
    Replied over 1 year ago
    Brandon Turner please please please can you direct me to (or create one if there isn’t one) instruction on what to do AFTER you use your first Heloc to buy a property. I can only find articles on how to do it the first time but I’ve done that. I need help on what to do next!!! Everything I read says “how to buy a rental with no money out of your pocket” etc..but the only way I can see that happening is if you take the time to use the cash flow to pay off the Heloc (can take 7 or so years) or if you flip the house and make enough to pay the Heloc with your profit. Is that correct??? What if I want to hold my property? My current plan is to use my own savings to pay off the home equity, then use the home equity to buy another home. At that point, I’m out of savings and can’t pay off the home equity so I’ll just need to wait to use the cash flow to slowly pay it back. Am I totally off track here???
    Kevin Moules Rental Property Investor from Turlock, CA
    Replied over 1 year ago
    Hello Heather, I’m no Brandon but hopefully can help you out as I am just starting. The two ways that you outlined to pay back the HELOC are correct. You could use cashflow or flip the property to pay it off. You could also use a combo of cashflow and job income to repay faster. The third method which you could try to implement is the BRRRR strategy. Use the HELOC to outright purchase the property and possibly fund the rehab. Maybe it only needs light rehab and you pay out of savings. Rent it out and then refinance the property with a new loan. Some banks may make you wait 6 months before refinancing, this is called a Seasoning period. At that time you pull all the money you used from the HELOC and pay off the HELOC loan off. Now your HELOC account is ready to be used again. When you refi you may have to keep money in the deal to make it cash flow and therefore only pull part of the money out to repay your HELOC and pay the rest off with savings. Lastly, depending on your HELOC amount and your market you may not be able to completely buy a property straight out. Maybe the HELOC will only cover the down payment on the property and you will need a conventional loan to cover the rest. Some banks may not like this since you basically are using two loans to purchase the place with no money out of pocket. I think this will vary by bank. In this scenario you would again have to refi out later on down the road to get money out and repay your HELOC. Hope this helps!
    Navid Aberg from Phila, Pennsylvania
    Replied over 1 year ago
    That’s what I thought, Kevin. Where are these markets where people have enough equity in their primary residence to pay off a new purchase completely?? I’ve got decent equity in my home but could only pull out for a down payment on homes here in Philly. So yea, looks like I’d be having to pay both the HELOC and the mortgage payments, meaning it could take several years to pay the HELOC off. Ugh!
    Kevin Moules Rental Property Investor from Turlock, CA
    Replied over 1 year ago
    Brandon, nice simple article and great short and concise video on the subject matter. Truly love what you guys are doing here. Because of BP I took action! I am currently using my first HELOC to fund my first flip project. So the only amount out of pocket is the amount I pay for use of the HELOC which is 1% of the loan. Once home sells I will repay the HELOC and try to utilize it again for a future buy and hold project hopefully using the BRRRR method. Folks, you have to understand that this is a second mortgage on your home! If you do not make your monthly payments the bank can foreclose on you! So, make sure you have have the funds to make the monthly payments on your HELOC.
    Michael Salamonski Investor from Milwaukee, Wisconsin
    Replied over 1 year ago
    One thing I’d caution is we recently had a lender that counted the HELOC as regular debt – knocking our DTI way out of whack, even though it was going to be paid off on the cash out refi. So you might have to shop around a bit if you have any debt whatsoever and a HELOC. But it can be done, we will eventually close with them and found other lenders that had a better grasp in underwriting on this strategy.
    Geoff Chan Rental Property Investor from Sacramento, CA
    Replied over 1 year ago
    Thanks all for sharing about HELOCs. I, too, am interested in acquiring a HELOC, but don’t fully understand the implications when it comes time to refinancing a deal and paying off the HELOC. Scenario: HELOC 100K and $50K Cash Purchase Price $120K Renovation: $30K ARV: 200K When it comes time to refinance the property to pull all the initial investment out to redeploy the HELOC and Cash, it would seem I could do it since the refinance would be 75% LTV. But, wouldn’t it be difficult to get a loan because of my debt-to-income with the HELOC payments taken into account? It would seem like lenders would be hesitant to refinance the property and lend more money on top of the 100K HELOC debt. I see that people keep referring to HELOCs similar to credit cards or 2nd Mortgages. If I only use 50K of the 100K, would lenders typically consider that all 100k has been leveraged regardless of how much was actually used?
    Gregory T. Washington from New Jersey
    Replied over 1 year ago
    I’m curious if I should purchase a rental property under an LLC prior to the cash out refinance or wait until the cash out refinance. Example: Should I transfer my HELOC funds into my LLC account and then purchase the rental property through my LLC account or should the cash out refinance be made under the LLC. I’m interested in some guidance with this.
    Jimmy Disch
    Replied about 1 year ago
    I would also like some clarification on this. I'd love to use a HELOC on my personal residence, but have the property in an LLC for the tax advantages and also to limit personal liability. My Scenario would be: Buy a property outright that needs some minor rehabbing using a HELOC on my personal house. Hopefully the property would then appraise for more and I could obtain traditional financing after rehab is complete. That would pay back most if not all of HELOC to set me up for the next deal. What is the smartest way to get this property into an LLC?
    Ahmed Abdel
    Replied over 1 year ago
    Excellent questions Mr. Gregory. I am looking forward to someone responding to it. Thank you
    Forest Williams Flipper/Rehabber from Braselton Ga
    Replied about 1 year ago
    This is awesome but finding it hard to locate a HELOC Lender...
    Christina Z.
    Replied about 1 year ago
    I am looking to use this for a rental purchase. I'm seeing a few intances on this tread where banks may not want to lend to a person using a HELOC down payment. Do lenders prefer at cash out refinance from a primary, for down payment on a rental? The reason why am looking at both options is because I dont have an immediate deal to spend this on and would pay interest out of pocked with a cash out refi.
    Brian Mauldin
    Replied 10 months ago
    Thanks for the info.! So, you don't have to pay on a HELOC until you draw from it? How does a debt to income ratio factor into using a HELOC to buy another property? Thanks!
    Namit Raisurana Investor from San Carlos, California
    Replied 3 months ago
    Hey. I am looking for 500k+ heloc. Do you know if any lender provides beyond 500k? I have enough equity on my primary property Thanks