A HELOC is a revolving line of credit secured by your home — like a credit card with your equity as collateral. You draw and repay as needed. A home equity loan is a fixed lump sum at a fixed rate — you borrow once and repay on a fixed schedule. HELOCs are typically variable rate; home equity loans are fixed. For real estate investing, most investors prefer HELOCs for the flexibility — borrow when you find a deal, repay when you sell or refinance.
Most lenders allow combined loan-to-value of 80–85% of your home's appraised value. If your home is worth $500k and you have a $300k first mortgage, your equity is $200k. At 80% CLTV, you can borrow up to $100k ($400k total debt divided by $500k value equals 80%). This calculation assumes good credit and income verification.
The risk is simple: if your investment goes wrong and you cannot repay the HELOC, your home is at risk. Investors who over-levered HELOC capital into flips and could not exit during market downturns have lost their primary residences. Use HELOC capital conservatively: only for deals with clear, fast exits and conservative underwriting.
HELOC capital is ideal for bridge financing a flip that will be repaid at sale within 6–12 months, funding a down payment on a rental that generates enough cash flow to service the HELOC payment, or providing rehab capital on a BRRRR deal that will be refinanced within 6–12 months. The common thread: a defined repayment source that does not depend on speculation.
Dan White is a licensed Virginia real estate agent at Pearson Smith Realty and founder of FreeDealCalc.com. He has been investing in Northern Virginia real estate for 20+ years.