When investing in real estate most people don’t realize that their home can be a great source for funding deals. Using a home equity line of credit or HELOC can provide the cash needed to do real estate deals. Here are 3 simple ways to use a home equity line of credit to fund deals:
- Flips – If you have enough cash from your HELOC you can buy a property for a fix and flip. Another option, if you do not have enough money available to do a fix and flip, is to use the cash you have available to get a hard or private money loan. Hard money and private money lenders are much more willing to lend you money for a flip if you have some cash available to put into the deal. They usually like you to have 20%-30% of the purchase price of the property plus rehab costs.
- Rentals – If you have enough cash you can buy rental property outright. With interest rates as low as they currently are, the rent you collect from a rental will cover your HELOC payment and give you a good cash flow as well. You could also use your HELOC for a down payment on a rental property. The down payment is usually 20%-30% of the purchase price. Keep in mind you will still have to qualify for a loan to cover the rest of the purchase price.
- Lease option or seller financing – These work for those who have a limited amount of money available from their HELOC. Lease options and seller financing allow you to get into deals with a smaller amount up front and without having to qualify for a bank loan.
Another benefit of using cash from a HELOC is that a cash offer is a much stronger offer and will give you a better chance of getting your offer accepted. You still need to do your due diligence to make sure the deal makes sense. Keep in mind that there will be a monthly cost to repay the HELOC so factor that in when you are running your numbers on the deal. Interest rates are at all-time lows, which makes a HELOC some of the cheapest money you can tap into.