New, how would you put your home equity to work?

Question

If you owned your home outright and wanted to put that equity to work what steps would you take to maximize return on investment?

John Morgan · Answer

It's just numbers for me. If the math works, I'll pull out equity and put it to use. I bought rental house #1 and #2 by doing a HELOC from my primary home. Then bought #3, 4 and 5 from doing a cash out refi on my primary a couple years later. I'm a fan of using equity that's just sitting there doing nothing for me if the numbers work. I've bought 14 rentals basically for free without a penny out of pocket by just using equity from my primary or rentals that had built up equity. That helped me scale up along with buying 6 houses from doing 401k loans (for up to 50k) and 0% interest for a year credit card loans. Dead equity seemed like a waste to me, so I put it to use to ramp up my cash flow. And if real estate goes up in 10-20 years which it normally does, then I'll be set. Especially with my tenants paying off my mortgages.

Ashish Acharya · Answer

Marcus, if the home is owned free and clear, I wouldn’t start with “how much equity can I pull out?” I’d start with “what investment would justify putting debt back on my primary residence?”

A HELOC or cash-out refinance can give you access to capital, but I’d want the next investment to produce a return comfortably above the borrowing cost and still leave enough liquidity for vacancy, repairs, CapEx, and surprises. I wouldn’t deploy all of the available equity just because it’s there.

If the goal is rental property, I’d compare a few scenarios side by side: use cash reserves, borrow a smaller amount against the home, or combine both. Then look at cash flow, DSCR, cash-on-cash return, and what happens if rent or the exit comes in below expectations.

From the tax side, if borrowed funds from a HELOC or refinance are used directly to acquire or improve an investment property, the interest treatment generally follows the use of the proceeds, so keeping the draw and investment expenses clearly traceable matters.

I’d also decide what strategy you actually want before borrowing, turnkey rental, BRRRR, flip, or something else, because each one has a very different risk and tax profile.

Owning the home outright gives you flexibility. I’d use that flexibility to be selective rather than feeling pressure to put every dollar of equity to work.

Feel free to DM me, I’d be happy to send over a few resources that might help you compare the options.

Kerry Noble Jr · Answer

Id use a HELOC to buy properties in cash and then refi into long term debt.

Stacy Raskin · Answer

Many investors have used their equity as down payments for new rental properties. I have clients who have used property equity and DSCR loans to buy more non owner occupied rental properties with no review of their personal income beyond the ability to pay the down payment and no debt to income (DTI) ratios. DSCR mortgages are based on the actual or projected property rent and the borrower credit score. They are less paperwork. If done in an analytical way using property equity can be a great way to buy more properties, have tenants pay the expenses, while generally having appreciation and cash flow grow over time.

Ryan Thomson · Answer

I did this exact thing to build to 5 properties in Colorado starting on a $35k/year social worker salary. HELOC on the primary, buy the rental, repeat.

But the part most people skip when running this math: the rate on the rental you buy matters as much as the equity you pull out.

Say you pull $80k via HELOC at 8% and use it as down on a $400k rental. At today's rates (6.8%), your P&I is about $2,330/month. That same property with an assumable FHA or VA at 2.75% runs about $1,630/month. That's $700/month difference, $8,400/year, straight to cashflow.

On an $80k investment, that's a 10.5% return from payment savings alone. Before appreciation, tax benefits, or the principal your tenant is paying down for you.

Add $12k/year in paydown on a $380k balance and you're looking at $20k+ in annual return on $80k deployed. That IRR is hard to beat in any asset class.

Every FHA and VA loan is assumable by law. The inventory at 2-4% is still out there. It takes 45-90 days to close and most agents don't know how to do them, but the math makes it worth finding one who does.

That's where I'd focus the equity if I were starting this over today.

Kathy Parker · Answer

One thing nobody's mentioned: the interest may not be deductible the way you'd expect. Since 2018, HELOC interest only counts as mortgage interest if the money goes back into the house securing the loan. Buying a rental doesn't qualify. There are tracing rules that might let you deduct it against the rental instead, but you have to document where the money went. Worth a call to a CPA before you draw.

Two other things:

Most lenders cap you around 80-85% combined LTV, so you can't tap the full value.

And since the house is paid off, that new payment comes out of your own income from day one, not the rental's. It could sit vacant or in rehab for months. I'd want to know I could carry it for six to twelve months out of pocket before signing.

Diana Khan · Answer

@Marcus King, one thing I’ve learned from working with investors is that I would figure out the structure before I ever pull the money out of the house. It is easy to think, “I have equity, so I can use it for the next property.” But I would want to know exactly where that money is going first.

Is it the down payment? Rehab money? Reserves? Are you buying personally or through an LLC? If you are putting personal money into an LLC, how are you documenting that? And most important, what is supposed to pay that money back?

I’ve seen investors get the property part right but make the money trail messy. A year later, they are trying to remember what was a personal contribution, what was a loan to the business, and what should have stayed in reserves.

So for me, the order would be: find the right opportunity, decide the ownership and financing structure, know the repayment plan, keep a healthy reserve, and then decide how much equity actually needs to come out. Having access to a lot of equity does not mean all of it needs to be working at the same time.

Since you’re in Mississippi, I’d still have local legal and tax professionals review the structure before you move forward.

Jon K. · Answer

I'd focus on preserving your equity instead of maximizing ROI. More ROI typically means more risk. If you are going to use your home's equity, I recommend from experience doing it slowly and conservatively.

Arman Ahmed · Answer

I’d avoid putting all that equity into one big bet. I’d look at using a portion to acquire a cash-flowing rental, ideally something undervalued where you have room to build equity, while keeping some liquidity on the side. If the numbers work, leverage can turn that idle equity into multiple income-producing assets over time.

New, how would you put your home equity to work?

New, how would you put your home equity to work?

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