One of the best ways to rapidly build your real estate portfolio is to use the power of leverage. And if you own your primary residence, taking a loan based off of your equity can be immensely useful. There are a few ways to utilize this strategy, and many of you have asked whether a home equity loan or a HELOC is a better strategy.
Home equity loans and home equity lines of credit are similar in that they both allow you to borrow against the amount of equity in your home. However, the two financial products have some main differences you’ll want to consider before you sign important documents at the bank.
A home equity loan gives you access to one lump sum of money. This is a fairly traditional loan. The bank looks at the value of the home and gives you a loan in one fell swoop. Typically, this is an amortized loan with a fixed monthly payment.
Alternatively, a home equity line of credit, or HELOC, works a little differently. A HELOC is a revolving line of credit, meaning it works similarly to a credit card. A HELOC can typically be used for around ten years. Many HELOCs come with a low introductory rate, and use simple interest.
Personally, I like to employ the strategy of using a HELOC because it is repeatable and reusable! In my experience, the HELOC is so much more flexible. It can be used like a traditional checking account; you will even be issued a check card and a checkbook. You can learn more about using a HELOC as an investment tool here!
Both the HELOC and the home equity loan are excellent banking products. Either can be a great tool for growing your real estate portfolio, but be sure you know your goals and understand your product thoroughly before making a decision.