How to Use a HELOC for Investment Properties
Investing in real estate can be a great way to make money and build wealth over time. One of the most popular ways to finance an investment property is through the use of a home equity line of credit, or HELOC. A HELOC is a type of loan that allows you to borrow against the equity in your primary residence, which can then be used for investing purposes.
How Does a HELOC Work?
When using a HELOC for investment properties, you’re essentially taking out a loan against the equity in your primary residence to finance an investment. A HELOC can be used for many types of investments, including purchasing rental properties, buying land to build on, or even investing in stocks and bonds. The amount of money you can borrow will depend on the amount of equity you have in your home. Generally, lenders will allow you to borrow up to 85% of your home’s value, although this can vary depending on the lender and other factors.
The Benefits of Using a HELOC
One of the biggest benefits of using a HELOC for investment properties is that it typically has a lower interest rate than other types of loans, which can save you money in the long run. Additionally, a HELOC is a revolving line of credit, meaning that you only pay interest on the amount that you borrow and not the entire loan amount. This allows you to access funds as needed without having to take out an entirely new loan each time.
The type of investments you use a HELOC for can also have an impact on how beneficial the loan is. Investing in rental properties or land generally makes more sense than using a HELOC for investing in stocks and bonds. This is because the rental income or resale value of a property can help pay down the loan faster, whereas investments like stocks generally take a longer time to generate returns.
Using a HELOC for investment properties can be a great way to build wealth over time. By understanding how to leverage your existing home equity, you can open up new opportunities when it comes to building your real estate portfolio. However, before taking out a HELOC, it’s important to consider the risks and ensure that you choose investments that are best suited for this form of financing. With careful planning and research, a HELOC can be a powerful tool when used properly. If you need equity financing for commercial real estate, contact the team at Leading Edge Commercial Capital today.