In the dynamic real estate market of 2025, savvy investors are increasingly turning to Home Equity Lines of Credit (HELOCs) as a strategic tool for acquiring investment properties. A HELOC allows homeowners to borrow against the equity in their primary residence, providing a revolving line of credit that can be drawn upon as needed. Unlike a traditional mortgage, a HELOC offers flexibility, often with competitive interest rates, making it an attractive option for funding down payments or even full purchases of rental properties, flips, or commercial real estate. The RefiGuide published this article to highlight the opportunities of using a HELOC to buy investment properties this year.
11 Reasons to Use a HELOC to Buy Investment Property in 2026
With home values having stabilized post-2024 volatility and interest rates hovering around 7-9% for HELOCs, this approach enables investors to leverage existing assets without disrupting their low-rate primary mortgages. But why choose a HELOC over other financing methods? Below, we outline 11 compelling reasons, backed by current market insights, followed by three real-world case studies illustrating their application.
1. Lower Interest Rates Than Unsecured Loans
HELOCs typically offer lower interest rates than personal loans or credit cards, often in the 7-10% range in 2025, compared to 15-25% for unsecured options. This can translate to significant savings when funding an investment property purchase, allowing more of your rental income to go toward principal repayment or reinvestment.
2. Flexible Draw and Repayment Terms
Unlike a lump-sum loan, a HELOC lets you draw funds only when needed—say, for a down payment on a multifamily unit—and repay over time. This revolving structure means you pay interest only on what you use, providing breathing room during property acquisition or renovation phases.
3. Quick Access to Capital
Approval for a HELOC can take as little as a few weeks, with minimal paperwork if you have strong equity and credit. In a competitive real estate market, this speed allows investors to seize time-sensitive opportunities, like distressed properties or auction deals, without the lengthy underwriting of conventional investment loans.
4. Preserve Your Low-Rate Primary Mortgage
With many homeowners locked into sub-4% mortgages from the early 2020s, refinancing to cash out equity would mean higher rates. A HELOC sidesteps this by adding a second lien, letting you tap equity without touching your favorable first mortgage. Can I get a HELOC on an investment property?
5. Potential Tax Deductibility
Interest on HELOC funds used for investment property may be tax-deductible as a business expense, similar to mortgage interest on rentals. Consult a tax advisor, but this can reduce your effective borrowing cost, especially for high-income investors in 2025’s bracketed system.
6. Leverage Equity for Wealth Building
By using home equity to buy income-generating assets, you’re essentially leveraging one property to acquire another. If the investment property appreciates or cash flows positively, this compounding effect can accelerate portfolio growth, turning homeownership into a real estate empire.
7. No or Low Closing Costs
Many lenders waive application fees, appraisals, or closing costs for HELOCs, especially for existing customers. This keeps upfront expenses low compared to traditional mortgages, freeing up more capital for your investment down payment or improvements.
8. Variable Rates Could Benefit from Rate Cuts
HELOCs often have variable rates tied to the prime rate. With economists predicting Federal Reserve cuts in late 2025, your borrowing costs could decrease over time, making it cheaper to hold investment properties during economic recovery. Shop for the best HELOC interest rates online.
9. Use for Down Payments or Full Purchases
A HELOC can cover a 20-25% down payment on an investment property or even the entire amount for smaller deals, bridging the gap when cash is tied up elsewhere. This is ideal for investors eyeing fixer-uppers or vacation rentals without depleting savings.
10. Build Positive Cash Flow
Strategic use of a HELOC can fund properties with strong rental yields. For instance, borrowing $100,000 at 8% might cost $667 monthly in interest, but if the property generates $1,200 in net rent, you’re ahead—building equity while the tenant pays down your line.
11. Diversification and Risk Management
In 2025’s uncertain economy, spreading investments beyond stocks or your primary home reduces risk. A HELOC-funded rental property adds real estate diversification, potentially hedging against inflation as rents rise with living costs.
While these reasons highlight the advantages, HELOCs aren’t without risks: variable rates can rise, and defaulting could jeopardize your home. Always assess your financial stability and consult professionals. Find out how to use a HELOC to buy another house.
Case Study 1: The Urban Flip – Sarah’s Quick Turnaround
Sarah, a 35-year-old software engineer in Chicago, Illinois owned a condo valued at $650,000 with $400,000 in equity. In early 2025, she spotted a distressed single-family home listed at $300,000 in a gentrifying neighborhood. With only $50,000 in liquid savings, she opened a $150,000 HELOC on her condo at 8.25% variable rate. She drew $75,000 for the 25% down payment and closing costs, plus another $25,000 for renovations.
The property flipped in four months, selling for $420,000 after $30,000 in upgrades. Sarah’s total HELOC interest paid: about $2,500. Net profit: $85,000 after fees. By using the HELOC’s flexibility, she avoided high-interest bridge loans and repaid the line immediately upon sale, preserving her cash for the next deal. This case exemplifies quick access and low costs turning equity into rapid gains.
Case Study 2: The Rental Empire Builder – Marcus and Elena
Marcus and Elena, a couple in Atlanta, Georgia had built $500,000 in equity in their $800,000 primary home by mid-2025. Aiming to generate passive income, they targeted a $450,000 triplex in a college town. Traditional investment loans quoted 9.5% rates with hefty fees, so they opted for a $200,000 HELOC at 7.75%.
They used $112,500 for the 25% down payment, keeping the rest available for repairs. The triplex rented for $3,800 monthly, covering the HELOC interest ($730/month on the drawn amount) plus the new mortgage, yielding $1,200 positive cash flow. Over the first year, property appreciation added $40,000 in value. By leveraging their home equity without refinancing, they maintained their 3.5% primary rate, illustrating how HELOCs facilitate cash-flow-positive investments and long-term wealth building.
Case Study 3: The Diversification Play – Dr. Lee’s Portfolio Expansion
Dr. Lee, a 48-year-old physician in San Diego, California faced stock market volatility in 2025 and sought real estate diversification. His $1.2 million home had $700,000 in equity. Spotting a $600,000 commercial space for lease as medical offices, he secured a $300,000 HELOC at 8.5%.
Drawing $150,000 for the down payment, he leased the space immediately, generating $5,000 monthly rent against $1,000 in HELOC interest and $2,500 mortgage payments—netting $1,500/month. Tax deductions on the interest further boosted returns. When rates dipped in Q4 2025, his variable HELOC adjusted down to 8%, saving $150 monthly. This move not only diversified his assets but also hedged against inflation, as rents adjusted upward. Dr. Lee’s success underscores the tax and rate advantages of HELOCs for professional investors.
Final Thoughts: Is a HELOC Right for Buying Investment Properties?
In 2025, with home equity at record highs and traditional financing constrained by elevated rates, using a HELOC to buy investment property offers a powerful, flexible path to growth. The 11 reasons above—from cost savings to strategic leverage—demonstrate why it’s gaining traction among investors. However, success hinges on due diligence: ensure positive cash flow, maintain strong credit (typically 680+), and limit combined loan-to-value to 80-90%. The case studies show real outcomes, but remember, real estate involves risks like market downturns or rate hikes. Consult a financial advisor to tailor this approach to your situation. By thoughtfully deploying a HELOC, you could transform home equity into a thriving investment portfolio.
FAQs for Using a HELOC to Buy an Investment Property in 2026
How much of a down payment do I need to buy an investment property with a HELOC?
When using a HELOC as your down payment source, most lenders still require 15–25% down for investment properties. Your HELOC funds can cover part or all of that amount, depending on available equity and lender guidelines. Some lenders may ask for reserves or proof the HELOC won’t strain your debt-to-income ratio. As long as your credit, income, and rental projections meet underwriting standards, using HELOC funds for the down payment is generally allowed.
Can I get a HELOC to buy an investment property with no income documentation?
Yes, certain non-QM and asset-based lenders offer HELOCs with limited or no income documentation, especially for investors. These programs may use bank statements, rental cash flow, or asset verification instead of traditional tax returns or W-2s. Expect stricter requirements such as higher equity, a stronger credit profile, and larger reserve funds. Rates may be higher than standard HELOCs, but these options can help investors who have strong assets but unconventional income streams.
Can you get a HELOC to buy a rental property with low credit scores?
It’s possible, but options are limited. Traditional banks typically require a credit score of at least 660–680 for an investment-property HELOC. Borrowers with lower scores may need to work with non-QM or portfolio lenders willing to accept additional risk. These lenders may require more home equity, higher rates, or stronger rental cash-flow support. Improving credit before applying can expand your lender choices and help secure more favorable terms.
Can I deduct HELOC interest on a rental property?
Yes, in many cases HELOC interest is tax-deductible when the funds are used for rental-property improvements, repairs, or business-related expenses. The IRS generally treats such interest as a business deduction, which can reduce your taxable rental income. The deduction typically doesn’t apply if the HELOC funds are used for personal expenses. Always consult a tax professional to confirm eligibility and ensure proper documentation for deductions.
About RefiGuide
Bryan Dornan is a financial journalist and currently serves as Chief Editor of RefiGuide.org. Bryan has founded several mortgage and marketing companies and has worked as a loan officer and mortgage broker in the industry for over 25 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. Bryan's continual focus is to promote affordable home-ownership to consumers like you across the United States. He also writes for RealtyTimes, Patch, Buzzfeed, Medium and other national publications. Find him on Twitter, Muckrack, and Linkedin
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