Why Open a HELOC Now?
HELOCs are cheap to open, and the beauty lies in their flexibility. You don’t pay interest unless you’re actively using the funds, which means it’s essentially a safety net for future investment opportunities. The key is to set it up now. Why? Because when that perfect investment property deal crosses your path, you don’t want delays while trying to secure financing. With a HELOC in place, you’re ready to act quickly.
Before you jump in, make sure you’re clear on the terms:
- How long is the HELOC open for? Typically 7-10 years, but some have draw periods (of 7-10 years) followed by repayment periods. Know your timeline.
- What’s the interest rate? Is it variable or fixed? Understand how it might fluctuate.
- What are the upfront costs? Look into closing costs or annual fees.
A little due diligence upfront ensures your HELOC is structured to support your investment goals.
Advising Clients About HELOCs
If you’re a real estate agent advising a client on using a HELOC for investment properties, the answer isn’t a straightforward yes or no. Instead, it’s about working through the numbers.
Encourage your client to use an amortization calculator to see how the HELOC would impact cash flow. For example:
- If they’re using a HELOC for a down payment, how will the additional repayment amount affect their monthly expenses?
- Does the investment property generate enough income to cover the HELOC payments and still provide positive cash flow?
By walking through these scenarios, you can help your client make an informed decision. It’s about balancing opportunity with financial responsibility.
Using HELOCs (or rather equity lines) on Investment Properties
Here’s an exciting development: some banks are returning to offering equity lines of credit on investment properties—not just primary residences (thanks covid for shutting that down). If you (or your client) own a fully paid-off or low-mortgage investment property, this could be a fantastic way to tap into that dormant equity.
Imagine being able to leverage the equity from one property to purchase the next. It’s a powerful strategy that allows you to grow your portfolio without having to liquidate other assets or rely solely on savings.
Bottom Line
Whether it’s for yourself or your clients, a HELOC can be a versatile tool in the investment toolbox. For personal use, open one now to stay prepared for future opportunities. For clients, focus on the numbers and ensure the strategy aligns with their cash flow and investment goals. Get out there and crush your investment goals in 2025!