What it is
A home equity line of credit is revolving debt secured by property you already own. Unlike a cash-out refinance, it leaves the existing first mortgage untouched, which matters enormously to any investor holding a low fixed rate they do not want to give up. You draw only what you need, pay interest only on the outstanding balance, and repay to make the line available again. During the draw period the payment is typically interest-only, after which the line converts to an amortizing repayment period.
How it is sized
Lenders work from a combined loan-to-value ceiling across all liens. Multiply the property’s value by that limit, then subtract the existing mortgage. A property worth $300,000 carrying a $150,000 first mortgage has $150,000 of equity; at a 90% combined limit, total allowed debt is $270,000, so the line comes to about $120,000. Limits on investment properties are usually tighter than on a primary residence, and the rate almost always floats against an index, so the payment on a drawn balance moves with rates rather than staying fixed.
Line amount = (value × combined loan-to-value limit) − existing mortgage balance. A $300,000 property with a $150,000 balance — $150,000 of equity — at a 90% limit supports about $120,000.
How investors actually use it
The pattern that makes a HELOC powerful is short-term deployment with a defined exit. Investors draw to make a cash offer on a distressed property or to fund a rehab, then repay the line from the permanent financing once the property is stabilized — effectively renting the money for the months it takes to force value. Because the funds are revolving, one line can support deal after deal without a new application each time, and because it stays undrawn when idle, it costs almost nothing to keep available as reserves.
The common mistake
Using a floating-rate line to carry a long-term position. A HELOC is comfortable at a low index and painful at a high one, and the balance reprices whether or not the property does — so a draw left outstanding for years has quietly become the most expensive and least predictable debt in the portfolio. The second risk is securing it against a property whose cash flow does not support the payment, since the line is a lien on a home you already own: a deal that goes wrong now threatens an asset that was never part of it.
Put it to work
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Related terms
- Cash-out refinance — Replacing an existing mortgage with a larger new loan and taking the difference in cash, tapping built-up equity without selling.
- LTV (loan-to-value) — The loan amount divided by the property's value or price.
- Hard money — Short-term, asset-based financing from private lenders, secured by the property rather than your credit or income.
- Seasoning — The minimum time you must own a property — or hold a mortgage — before a lender will let you refinance at its new appraised value or pull cash out.