How to Use a First Lien HELOC for Real Estate Investments
Updated as of January 26, 2024 | 5 min read
Good to know:
One of the best options to getting your first or next property is with a 1st Lien HELOC. These loans allow you to tap into your current equity in order to secure your next investment, and can be financed up to 1.5 m.
With a reputation for being flexible, a HELOC can cover many day to day expenses for real estate investors, and offer quick access to capital for opportunistic deals.
There are so many options when it comes to investing in real estate. You could save up for new properties over time, or you can utilize one of the many loan programs suited to investing in real estate.
Wondering what exactly a HELOC is, and which kind is best for property investment? Keep reading to find out how to use your home’s equity to build cash flow and wealth using a HELOC.
Common Solutions for Real Estate Investing
So how do most investors purchase new properties? There are a handful of common ways.
Many use a conventional mortgage, or investment property mortgage to acquire a single-family home. These are similar to the mortgage you have on your home, except that down payment requirements and interest rates are generally higher.
The downside with this approach is having to save up for a down payment each time you’d like to acquire a property.
Some use the BRRRR method of investing. BRRRR stands for buy, rehab, rent, refinance, repeat. Essentially, you buy a home that requires some rehab. After you fix it up and rent it out, you have equity in the home. You can then refinance, pull your equity out of the home with a new mortgage, and free up your cash to acquire another property.
If you are trying to grow your portfolio quickly, this process can be much faster than having to save up for a new down payment for every property.
But is there an even faster way of getting started? With a HELOC, you probably already have enough for a down payment. You just need to access your current home’s equity.
Different Types of HELOCs
So what exactly is a HELOC, and are there different kinds? A HELOC, or home equity line of credit, is a revolving line of credit.
- When you get a HELOC, you are accessing your current home’s equity. Essentially, you are borrowing money from yourself. And because the HELOC is secured against your property, you can typically get lower rates than other types of unsecured loans.
- Once you get a HELOC, the undisbursed money will be available for your use. You will be able to pay back through your positive cash flow. Most people use a HELOC to pay for home upgrades, to consolidate debt, or to invest in property.
- But not all HELOCs are the same. Most of the time, when people talk about HELOCs, they are talking about second lien HELOCs. These function as a second mortgage. They don’t replace your current mortgage.
- A better option for investing in real estate is a first lien HELOC, which combines your mortgage, a line of credit, and a checking account. Getting a first lien HELOC would replace your current mortgage with a more flexible one, allowing you to pay down your mortgage faster or invest in other properties.
How a HELOC Helps Manage Cashflow
Life can be surprising. From medical bills to car accidents and repairs, we need to have money saved for these emergency expenses. When it comes to investing in real estate, the same principle applies.
If you have one rental in place and decide to buy another one without having any cash reserves in place, you are in trouble. What if your furnace goes out in the first home? What if the roof leaks, or a pipe bursts?
You always need to have savings or cash reserves in place. Having a HELOC could help you manage your cash flow for your real estate investments as you build up savings or cash reserve.
Because a HELOC is a revolving credit line, you only spend when you need to. But having it open gives you immediate access to cash in case of emergency.
And when you do spend money, say for an emergency, the interest rate could be lower than other financing options. HELOCs are incredible ways for investors to have cash reserves in place to manage cash flow effectively.*
How to Buy Multiple Properties With a First Lien HELOC
One of the best benefits of a first lien HELOC is how it can be used to acquire multiple properties. Depending on how much equity you have, and where you are investing, you may use a HELOC differently.
If you have a $500,000 home and $300,000 in equity, you can potentially buy two low-cost properties outright. If you have two homes in the Midwest or the South for $100,000 each, you can buy them using your HELOC without getting any additional loans.
If you are investing in a higher-priced market, you can use your equity as a down payment on one or more homes, getting a mortgage on each property. Using your current equity can make it much faster to acquire multiple properties than saving up multiple down payments.
And if you’d like to free up your equity to invest in even more properties, you can perform a cashout refinance on each one of those properties, assuming you have equity. Or you may be able to get a HELOC on your rental properties as well.
Using a first lien HELOC is an incredible way to grow your wealth. They help to save money on mortgage interest and increase equity faster. But they give you the opportunity to invest in real estate. First lien HELOCs are powerful wealth-building tools. Want to learn more about getting a First lien HELOC, and if they are right for you? Sign Up today and we’ll guide you through the whole process.
Achieve Financial Freedom
Sign up on FirstLienHeloc.com to get connected with a licensed lender who can deliver an all-in-one 1st Lien HELOC. They’ll walk you through the application process and help outline your budget, your numbers, and exactly how much you can save by replacing your mortgage.