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Lacking the liquidity necessary to make your first real estate purchase? It’s a frustrating situation to be in—especially if you’ve found a great deal or a viable opportunity. You may be wondering what options you have or what steps you can take to get over the initial hump of not having upfront capital.
Using a HELOC on investment property purchases may be the answer. It’s a great way for prospective real estate investors to tap into the funds necessary to start investing in real estate early by borrowing against an existing asset: Their home.
So if you would like to learn how you can use a HELOC on investment property purchases, as well as a variety of other real estate endeavors, just give me and my team and call and we will be more than glad to help you get started.
How to tap into a HELOC
HELOCs allow you to open a line of credit based on the equity you’ve established in your home. Different from a home equity loan (HEL), HELOCs provide homeowners with the opportunity to leverage their most valuable asset – their house – to consolidate debt, remodel or repair their home or even put a down-payment on an investment property.
To tap into a HELOC, you’ll need to have a hard asset, like a home, with enough equity built up for you to borrow against. The lender will provide you with a maximum “draw,” rather than a dollar amount you can borrow, equivalent to the amount of equity in your home.
Typically, this asset is going to be your house, however, once you have begun to build your portfolio my team and I can help you take out a HELOC on investment property equity, and other real estate assets.
HELOCs are assigned a set period during which the credit issued can be used and another set period during which the borrowed money must be repaid. Typically, homeowners paying down HELOC loans have five to 10 years during which they only pay interest, and another 10 to 15 years to pay down the balance of the loan.
HEL vs. HELOC
Note the differences between HELs and HELOCs. HELs typically mirror a more traditional mortgage structure, and can often be thought of as a second mortgage on your home. HELs usually have a fixed interest rate and are a one-time loan paid back according to an established schedule.
HELOCs, on the other hand, usually feature variable interest rates and operate as a revolving line of credit you can access again and again. Because the interest rates can swing dramatically over time, the amount you owe on your HELOC payments each month may change significantly.
Of course, this can be either beneficial or detrimental depending on the market conditions. For example if you use a HELOC on investment property purchases while interest rates are declining, your interest payments are going to drop. However, if you use a HELOC on investment property purchases while rates are rising, you can expect to pay more per month on interest.
Keep the model going
Looking for a way to leverage your existing assets to begin investing in real estate? You may want to consider the benefits of using a HELOC on investment property purchases. Once you’ve built up equity in an investment rental property, for instance, you can use a HELOC to borrow against that equity and purchase another rental asset.
HELOCs are a great tool savvy investors can use to quickly expand their portfolio of properties without tapping into their liquid cash.
Discover How To Apply For An Investment Property Mortgages With This Step By Step Guide
Benefits of using a HELOC on Investment Property Purchases
First-time investors can tap into many benefits by borrowing against their home equity to acquire their first investment property. Here are just some of the reasons you may want to consider using a HELOC on investment property purchases to get started:
Boosts credit
One of the primary benefits of using a HELOC on investment property purchases is that it counts as a line of credit, just like a credit card, on your credit report. This means if you use less than 30 percent of the funds available through your HELOC, it will boost your score. Additionally, if you make your payments regularly and on-time, it will improve your overall credit score.
Increases liquidity
There are several reasons you may want to increase the amount of cash you have on-hand, from covering emergency expenses to buying an investment property outright. Regardless of your reasoning, you can use a HELOC to tap into financial assets currently tied up as equity in your home.
By extension this means that by using a HELOC on investment property purchases, you can make larger purchases without spending nearly as much – if any – of your own money.
Finances real estate purchases
One of the most strategic decisions you can make with your HELOC funds is investing in real estate. Whether you’re using a HELOC to cover your down payment or are hoping to purchase an entire property outright, your HELOC can provide you with the flexibility necessary to make a purchase in-line with your goals as an investor.
Leveraging existing investments to scale your portfolio
Using a HELOC on investment property purchases is a powerful method to leverage your existing investments. After all, in many cases if you have enough equity available to draw, you can use a single property to do so much more.
For example, if you have a property with $250,000 in available equity to draw upon, you can use that property’s HELOC on investment property down payments to buy up to five properties valued at $250,000 with 20 percent down.
Funds improvement projects
You’ve already purchased your investment property, only to find it needs a bit more love and care than you first anticipated. It happens to even the best investors. A HELOC may be the tool you need to fund your property improvements and prepare the asset for lease. HELOCs provide you with the flexibility to use the equity built-up in your home however you see fit.
HELOCs are especially great for this because by using a HELOC for investment property renovations, you can essentially rebuild the equity you have withdrawn to complete the renovations while strictly using funds generated by the property.
Applying for a HELOC with LendCity
If you would like to learn how to get a HELOC on an investment property or leverage one to begin buying rental properties today, my team is ready to help you.
Unlock your hard-earned equity today by clicking the link here to book a strategy call with my team.
Qualifying for a HELOC
The first things to consider when attempting to leverage a HELOC on investment property purchases is whether or not you qualify for one, and whether it’s the right investment tool for you. If you are a homeowner with established equity in your house, you’ll likely qualify for a HELOC. Here are some of the factors impacting qualification:
Credit score
As with any other type of credit line, your credit score plays a significant role in whether you qualify for a HELOC. Because you’re borrowing against the equity in your home, HELOCs are often seen as less risky for lenders when compared to unsecured lines of credit, like credit cards.
Debt-to-income ratio
Your debt-to-income ratio, which factors into your credit score, may make or break your qualification for a HELOC. If you can’t afford to pay down what you already owe, banks are highly unlikely to issue you another loan. Most banks establish a maximum debt-to-income ratio somewhere around 40 percent.
Amount of equity
The amount of equity you’ve built up in your home will also determine whether you qualify for a HELOC, as well as the amount you’re eligible to borrow. A home has equity when the balance of the mortgage is less than the value of the home. If you’ve already taken out a second mortgage or HEL, you likely don’t qualify.
For those who don’t qualify for a HELOC product, don’t despair. There are plenty of other financial resources prospective investors can leverage to enter the real estate market. If you’re a determined, savvy business operator, you can always find an investment opportunity that meets your needs.
Ready to get started with a HELOC to finance an investment property?
If so, we recommend you contact us at LendCity Mortgages, as we specialize in working with real estate investors. My team can be reached at the link above, 1-519-960-0370 or at the link below.