HEL vs HELOC

Uncategorized Jan 31, 2021

"Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world."
Franklin D. Roosevelt, U.S. President

 

Real estate business and investing is a never-ending process of learning.
In this case, we're talking about Home Equity Loan (HEL) and Home Equity Line Of Credit (HELOC)

As the borrower, HEL provides you with a single lump-sum payment and is repaid at an agreed-upon interest rate over a set time (usually five to 15 years). Over the loan's lifetime, the payment and interest rate usually remains the same. When the home on which it is based is sold, the loan must be repaid in full.

Whereas a HELOC is a revolving credit line, which, for a term determined by the lender, you can draw on as needed, pay back, and then draw on again. HELOCs typically have a variable interest rate, but some lenders offer fixed-rate options.

In other words, it's a credit line that you can access whenever you want at a super low-interest rate.

Let me explain why this loan is useful.

Once you're guaranteed with HEL in a lump sum amount, it can act as a down payment for an investment property.

Conversely, you can borrow against your line with HELOC, repay it all or in part, and then borrow that money again later, as long as you're still in the drawing period for HELOC.

I actually used a HELOC of $100k on our primary residence that we BRRRR’ed to start a BRRRR project on a 10 unit deal. In the end, it ended up being a gift that kept on giving because of the multiple times I used it to cash out.

So if you have equity in your primary, I would recommend that you consider this. This way, whenever you come across a good deal that you want to close, you already have a credit line.

You know what they say, Luck Is What Happens When Preparation Meets Opportunity, and it happens all the time in real estate.

 

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