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Guide to HELOCs on investment properties

  //stocks-investing.news-articles.net/content/202 .. 03/guide-to-helocs-on-investment-properties.html
  Published in Stocks and Investing on Monday, November 3rd 2025 at 15:37 GMT by Local 12 WKRC Cincinnati

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HELOCs on Investment Properties: How Homeowners Can Leverage Equity for Real‑Estate Gains

Local12’s latest mortgage coverage dives into the increasingly popular strategy of using a Home Equity Line of Credit (HELOC) to finance an investment property. The piece explains why the approach appeals to savvy investors, outlines the mechanics of a HELOC, and weighs the pros and cons of borrowing against your primary home to acquire rental or commercial real estate.

What a HELOC Is and How It Works

A HELOC is a revolving credit line secured by the equity in your primary residence. Unlike a traditional home loan, the borrower can draw money as needed, repay it, and redraw it again—up to the credit limit—throughout the loan term. The article notes that interest rates on HELOCs are generally variable and tied to the prime rate, which means payments can fluctuate month to month. Borrowers pay interest only on the amount they actually use, not the entire credit limit.

The local article cites the U.S. Department of Housing and Urban Development for key eligibility criteria: borrowers must have a minimum of 15–20 % equity in the home, a credit score of at least 620, and a debt‑to‑income ratio that meets lender guidelines. HELOCs also have a “draw period” (typically 5–10 years) after which the loan converts to a fixed‑rate repayment schedule.

Using a HELOC to Fund an Investment Property

Local12 highlights how investors use a HELOC as a low‑cost, flexible source of capital. The article explains that because the HELOC is secured against a primary residence with a historically low default rate, lenders often offer lower rates than those available for a second‑mortgage or a hard‑money loan. With the funds drawn, investors can purchase a rental property, a fixer‑upper, or even a small commercial building.

A step‑by‑step example illustrates the process: after qualifying for a $200,000 HELOC, an investor might draw $150,000 to cover a down payment, renovation costs, and a contingency reserve on a $350,000 multifamily unit. The investor then continues to draw on the line for ongoing repairs or a down payment on a second property. The article emphasizes the importance of keeping the HELOC utilization below 30 % of the available credit to maintain favorable rates and avoid “overdraw” penalties.

Advantages for Real‑Estate Investors

The Local12 piece outlines several benefits that make HELOCs attractive:

1. Lower interest rates – HELOCs often feature rates 0.5 % to 1 % below comparable unsecured loans, which can translate to substantial savings over a multi‑year investment horizon.
2. Tax‑deductible interest – Interest paid on a HELOC used for investment property can be deductible as a business expense, assuming the borrower follows IRS guidelines and the loan is used “primarily” for income‑producing purposes.
3. Flexibility – Investors can draw only what they need, repay it, and then borrow again, which provides a dynamic funding tool that aligns with project phases or unexpected expenses.
4. Speed of funding – HELOC approval can take as little as a week, especially for borrowers with a strong credit history and substantial equity. This speed can be critical when closing on time‑sensitive properties.

Risks and Considerations

The article also warns that borrowing against your primary home is not risk‑free. The primary risks highlighted include:

• Variable rates and payment swings – If the prime rate rises, the HELOC payment can increase, squeezing cash flow. The article suggests locking in a fixed‑rate second mortgage if a large, one‑time draw is needed.
• Potential for foreclosure – Failure to repay the HELOC can result in foreclosure of the primary residence, which may outweigh the benefits of the investment.
• Reduced liquidity – Tying up a large portion of equity limits the borrower’s ability to take advantage of other opportunities, such as a better property or a favorable refinance on the primary home.
• Tax pitfalls – The IRS requires that the HELOC be used “primarily” for investment purposes. Mixed use (e.g., taking a draw for a vacation home improvement) can lead to a loss of the tax deduction.

Expert Insight

Local12 features quotes from mortgage broker Linda Martinez of ABC Mortgage, who notes that many of her clients are “looking for a way to diversify their portfolios quickly without selling off assets.” She adds that HELOCs can be part of a broader strategy that also includes hard‑money lenders, private equity partners, or traditional bank loans. Martinez cautions that the “draw period is typically 10 years; after that, you’re required to pay back the entire balance over a 10‑ to 30‑year amortization,” so investors should plan long‑term cash flows.

Practical Tips for Using a HELOC

The article concludes with a set of actionable tips:

1. Calculate the true cost of borrowing – Factor in annual fees, prepayment penalties, and the impact of variable rates.
2. Set a draw limit – Keep your utilization under 30 % of the line to preserve credit lines for future projects.
3. Create a repayment plan – Schedule regular payments even if the loan is in the draw period to reduce interest exposure.
4. Monitor market rates – Lock in a fixed‑rate second mortgage if the market trend indicates a rise in prime rates.
5. Track tax implications – Maintain clear records of how the HELOC funds are used to substantiate the “investment purpose” on your tax return.

Related Coverage

For readers who want deeper insight into mortgage fundamentals, the article links to Local12’s “Mortgage Basics” page (https://local12.com/money/mortgages) and to a related feature on “Refinancing Strategies for Multiple Properties” (https://local12.com/money/mortgages/refinancing-strategies). These resources provide additional context on how a HELOC fits within a broader portfolio of real‑estate financing options.

In summary, Local12’s coverage offers a balanced view of using a HELOC to fund an investment property, highlighting both the financial advantages and the inherent risks. The article underscores the importance of careful planning, clear understanding of loan terms, and ongoing monitoring to ensure that the leverage strategy ultimately supports a growing real‑estate portfolio rather than jeopardizing the primary residence.