Can a Home Equity Line of Credit Help You Buy a Rental Property?

Can a Home Equity Line of Credit Help You Buy a Rental Property?

Can a Home Equity Line of Credit Help You Buy a Rental Property?

 If you are pondering ways to earn extra income, there is a good chance that you may be considering buying a rental property. But while this form of income can be appealing, saving up a down payment can be a challenge for many people. 

For this reason, many who decide to go this route are opting to fund their purchase through a Home Equity Line of Credit (HELOC).

With a HELOC, you are basically borrowing money against the equity in your home. There is no lengthy approval process and you will be granted the loan as long as you have built up sufficient equity in your home.

If you wish to purchase a rental property, there are many advantages to using a HELOC to do so including:

  1. Guaranteed approval as long as you have equity in your home.
    2. HELOCs frequently allow you to access more cash and have better terms than other types of loans.
    4. A HELOC can help you avoid cashing in RRSPs and other investments.

Of course, using a HELOC to purchase a rental property is not the right choice for everyone and there are some drawbacks that you also need to be aware of including:

  1. When you borrow against the equity in your home, you can expose yourself to greater risk of foreclosure. If you become unable to make the payments, you could end up losing your home.
    2. The rates of a HELOC are variable, so you need to make sure that you can still afford the payments if interest rates go up.

So, should you purchase a rental property using a HELOC? It can be a good option for some people, but there are risks. Before making a major decision like this it is a good idea to sit down with a qualified mortgage broker as well as a financial advisor.

These professionals can help you determine whether such a plan is a good choice for you. Even if it turns out that buying a rental property today is not a wise decision, they may be able to help you come up with a plan to make it possible a few years from now.

If you would like to learn more about how using a Home Equity Line of Credit can help you, contact my office today. I would be happy to help! 

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