Heloc

What it is

A HELOC is a home equity line of credit. It’s like a credit card backed by the equity in a property you already own. You draw against it when you need capital, pay it back, draw again.

People talk a lot about zero-down deals. A lot of what they’re actually describing is using a HELOC to fund the down payment. If you own a primary residence that has equity, the bank will give you a revolving line against it — usually at mortgage-like rates — and you use that to cover whatever you need to put into a new acquisition.

As a general contractor, I always had a line of credit. It’s one of the standard operating costs of running a construction business — about $1,000 a month just in interest to smooth out the cash swings. That’s real overhead.

Why it matters

For a flipper who owns a home with equity, a HELOC is one of the cheaper capital sources available. You don’t pay interest on the unused line. You can draw for a deal and pay it back when you close. It’s revolving and flexible in a way that a traditional refinance isn’t.

The best use: acquisition capital on a deal where you already have a plan to refinance out within 6 to 12 months. Buy the house with HELOC money, renovate, refinance to a DSCR or conventional loan, pay the HELOC back, repeat. That’s cash recycling. The HELOC is the mechanism that lets you move at the speed of opportunity instead of the speed of your savings account.

The worst use: running a HELOC up on your personal home to fund lifestyle or speculative deals. That’s equity looting. If the market softens and the deal can’t cover the debt, the HELOC becomes a payment on the house your family lives in. People lost everything in 2008 this way.

FHA doesn’t want you using borrowed money for the down payment either. The money has to be in your account for 90 days. So if someone gives you $20K to bridge the down payment, they’d have to give it to you 90 days in advance. You can see why that gets complicated fast — which is why if you’re putting your down payment on a credit card, you’re already starting behind the eight ball.

How it shows up

HELOC sits alongside hard money, private money, and seller financing in the funding stack. Each tool has a use case. Hard money is fast and expensive (12%, 2–4 points, 6–18 month terms). Private money is relationship-based. HELOC is cheap revolving capital you already own.

The discipline: treat it like a bridge, not a bank account. Draw, deploy, refinance out, repay. A HELOC sitting at 80% utilization for three years means something isn’t getting refinanced out cleanly. When rates rise, that situation turns a good deal into a slow bleed.

Related

hard money, private money, seller financing, refinance, cash recycling, funding, house hacking