Using a HELOC on Investment Properties: What You Need to Know

If you own a rental property or investment real estate, you’ve probably thought about ways to access the equity you’ve built. While home equity lines of credit (HELOCs) are commonly associated with primary residences, they can also be a powerful financial tool for investment property owners, though they can be harder to find.

Why Consider a HELOC on an Investment Property?

Investment properties offer unique opportunities to leverage equity for various financial goals. Here are some common reasons property investors explore HELOCs:

• Fund renovations and improvements: Whether you’re upgrading kitchens, adding bathrooms, or making repairs between tenants, a HELOC provides flexible access to capital for property improvements that can increase rental income or property value.
• >Purchase additional properties: Real estate investors often use the equity in one property to fund down payments on additional rental properties, allowing them to scale their portfolio without liquidating existing assets.
• Cover unexpected expenses: From emergency repairs to gaps in rental income, having a line of credit tied to your investment property can provide a financial cushion when you need it most.
• Consolidate higher-interest debt: If you’re carrying credit card balances or other high-interest loans related to your investment activities, a HELOC typically offers lower rates secured by your property equity.
• Bridge cash flow gaps: Rental properties don’t always generate consistent monthly income. Tenant turnover, seasonal markets, or unexpected vacancies can create temporary cash flow challenges that a HELOC can help smooth over.

The Challenge

Here’s the catch: most traditional lenders don’t offer HELOCs on investment or rental properties. Banks and credit unions often restrict HELOCs to primary residences because they’re considered lower risk; homeowners are less likely to default on their primary home than on an investment property.

This limitation leaves many real estate investors with fewer options for accessing their equity. Some turn to cash-out refinances, which can reset their mortgage terms and come with higher closing costs. Others use personal loans with higher interest rates or tap into credit cards, which defeats the purpose of leveraging lower-cost home equity.

Using Your HELOC Strategically

If you secure a HELOC on your investment property, strategic use can help you maximize its value:

• Keep it as a reserve: Having an untapped line of credit gives you flexibility for opportunities or emergencies without the pressure of needing to use it immediately.
• Track expenses carefully: Interest on HELOCs for investment properties may be tax-deductible if the funds are used for property improvements or acquisition. Keep detailed records and consult with a tax professional about your specific situation.
• Plan your draw timing: Many lenders require a minimum upfront draw, forcing you to borrow money immediately whether you need it or not. Look for a HELOC that lets you draw only what you need, when you need it, so you’re not paying interest on funds sitting unused.
• Consider the rate environment: HELOCs typically have variable interest rates tied to the prime rate. In a rising rate environment, this means your costs could increase over time. The best HELOC lenders offer both variable rates and the option to lock in fixed rates on all or part of your balance, giving you flexibility to manage interest rate risk.

Finding the Right Solution

The lack of HELOC options for investment properties has long been a frustration for real estate investors who want flexible, lower-cost access to their equity. While many major banks and credit unions focus exclusively on primary residences, the landscape is gradually changing as some lenders recognize the demand from this underserved market.

At Trovy, we understand that real estate investors need financial tools that match their unique situations. Unlike many lenders who restrict HELOCs to primary residences, Trovy offers HELOCs on investment and rental properties, giving property owners more options for accessing their equity efficiently. And unlike traditional HELOCs that require you to take a minimum draw upfront, Trovy has no minimum upfront draw requirement; instead, you only borrow what you need, when you need it.

Trovy’s HELOC comes with a variable rate, but through Trovy FixedPay, you have the flexibility to lock in a fixed rate on all or part of your balance, helping you manage interest rate risk while maintaining access to your line of credit.

Whether you’re looking to renovate, expand your portfolio, or simply have a financial safety net, having access to your investment property equity through a HELOC can be a valuable part of your real estate strategy. As with any financial decision, take time to compare your options, understand the terms, and choose the solution that best fits your investment goals.

Interested in learning how a HELOC can work for your residential real estate investment strategy? Check your offer below.