If you don’t use a HELOC in your real estate investment career, you’re missing out on these benefits.
The uses and benefits of a HELOC for a real estate investor are broad and huge. This line of credit is one of the best ways to tap into your existing money to create more money.
Let’s take a look at a few of the ways you can utilize your HELOC to benefit your real estate investments.
Benefits of a HELOC for Real Estate Investors
You can use a HELOC as a down payment on any loan – hard money or long-term. Anytime a lender requires a down payment, you can take the money off your home equity line of credit, and bring it to closing.
For down payments on rental properties, your lender will still require the money borrowed from your HELOC to be included in your debt ratio.
For a flip or a BRRRR, you can use money from your HELOC to cover the costs of construction.
Money from a hard money lender or bank comes at a higher price. If you’d prefer to use your HELOC to cover construction costs, you can lower the amount borrowed from a lender.
A HELOC will be some of the cheapest money you can find out there – especially now with money tightening. Using it helps lower your overall costs.
Another benefit of a HELOC is the speed and flexibility. If you don’t have time to wait for your lender’s escrow process to pay your contractor, you can just pull the payment off your HELOC.
Carry Cost Benefits of a HELOC
Carry costs include monthly interest, HOA fees, mortgage payments, some materials and construction, and any other regular cost associated with owning the property.
These costs can turn into a burdensome expense on a flip. You can pull from your line of credit to cover carry costs, and when your flip sells, you can put it all back in.
Buying Properties at Auction
There will be more foreclosures coming up soon. To take advantage of this turn in the market, you can use money from your HELOC to buy a foreclosed property at auction.
The benefit of a HELOC here is that you don’t have to get lender approval or meet lender requirements before placing a bid on a property. You can pull from it, pay for the property (or at least the down payment), and refinance later if needed.
Buying Wholesale Properties
You can also buy properties from wholesalers or the regular marketplace when you otherwise couldn’t. You close with a HELOC, then go back and refinance with a hard money or bank loan.
With this strategy, you can close on a deal faster than anyone else. You don’t have to sift through the paperwork and red tape of a loan; just go to the bank and wire out the funds.
Bridge Loan Benefits of a HELOC
Some investors use their HELOC to bridge between properties.
They have one flip for sale, but they’re ready to buy their next one. They use a HELOC to cover the down payment, then pay it back when the other property sells.
You can create your own bridge loan by using a HELOC.
Lend to Other People
You can also use it to lend to other people in the real estate investment community at a profit.
You can borrow from a HELOC at a rate of 5-6%, and you could charge someone else up to 10-12%. (But of course, always be careful and protect yourself when lending to other people).
Overview of the Benefits of a HELOC
- Using your HELOC allows you to use your money, without taking anything from your savings or 401k
- You can tap into the equity that’s already at your disposal
- It keeps projects going while typical loans are tightening up
- You can get into properties quickly and refinance a few weeks later
- You can avoid the higher rates of external lenders by borrowing from your HELOC
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