How to Use a HELOC to Buy Real Estate

How to Use a HELOC to Buy Real Estate

1 min read
Brandon Turner

Brandon Turner is an active real estate investor, entrepreneur, writer, and podcaster. He is a nationally recognized leader in the real estate education space and has taught millions of people how to find, finance, and manage real estate investments.

Experience
Brandon began buying rental properties and flipping houses at the age of 21. He started with a single family home, where he rented out the bedrooms, but quickly moved on to a duplex, where he lived in half and rented out the other half.

From there, Brandon began buying both single family and multifamily rental properties, as well as fix and flipping single family homes in Washington state. Later, he expanded to larger apartments and mobile home parks across the country.

Today, Brandon is the managing member at Open Door Capital, where he raises money to purchase and turn around large mobile home parks and apartment complexes. He owns nearly 300 units across four states.

In addition to real estate investing experience, Brandon is also a best-selling author, having published four full-length non-fiction books, two e-books, and two personal development daily success journals. He has sold more than 400,000 books worldwide. His top-selling title, The Book on Rental Property Investing, is consistently ranked in the top 50 of all business books in the world on Amazon.com, having also garnered nearly 700 five-star reviews on the Amazon platform.

In addition to books, Brandon also publishes regular audio and video content that reaches millions each year. His videos on YouTube have been watched cumulatively more than 10,000,000 times, and the podcast he hosts weekly, the BiggerPockets Podcast, is the top-ranked real estate podcast in the world, with more than 75,000,000 downloads over 350 unique episodes. The show also has over 10,000 five-star reviews in iTunes and is consistently in the top 10 of all business podcasts on iTunes.

A life-long adventurer, Brandon (along with Heather and daughter Rosie and son Wilder) spends his time surfing, snorkeling, hiking, and swimming in the ocean near his home in Maui, Hawaii.

Press
Brandon’s writing has been featured on Forbes.com, Entrepreneur.com, FoxNews.com, Money Magazine, and numerous other publications across the web and in print media.

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YouTube
Instagram @beardybrandon
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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.

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!

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

Comment below.