How to finance with HELoC

Question

I am interested in continuing to invest in real estate but my traditional savings can only go so far.  For my next purchase I need to get more creative. If you borrow from your personal house, how does a deal work when you have to start paying back two loans right away?  How do you do this?

Samuel Awosolu · Answer

Hello Jeffery,

A HELOC can absolutely work for investing . However the trick is making sure the new property eventually carries the debt you used to acquire it. So you will need to do a lot of due diligence and know your numbers.

The way most investors I work with use HELOCs is to cover the down payment or rehab costs, get the property stabilized, and let the rental income offset both the mortgage and the new HELOC payment.

Once the property appreciates or is cash‑flowing, they do a cash‑out refi to pay the HELOC back and free it up for the next deal. Some use HELOCs for fix and flips. Funds are used for the down payment and rehab costs. Then after the rehab is completed it is put on the market to sell. After it's sold you pay back the HELOC and start the process over again.

I simplified explaining it but it is more nuanced then that. I just want to emphasize to do your due diligence and know your numbers. It will save you some headaches.

Vijay Friedman · Answer

@Jeffery ChalfinA lot of investors use a HELOC as a source of capital rather than long-term financing. The key is making sure the investment property's cash flow can comfortably support both the new loan and the HELOC repayment plan. Running conservative numbers before buying usually makes the strategy much less stressful.