A HELOC, or home equity line of credit, is a revolving loan secured by the equity in a property you already own, letting you borrow, repay, and borrow again up to a set limit. Landlords reach for it most often to fund a rehab or to cover the down payment on the next rental, because the money is drawn only when you need it and you pay interest only on the balance you actually carry.
In practice
Say you own a rental worth $400,000 with a $220,000 mortgage. Your equity is $180,000. A lender that caps your combined borrowing at 80% of value will lend up to $320,000 across all liens, so the HELOC line maxes out at $320,000 − $220,000, or $100,000. You draw $60,000 to put 25% down on a $240,000 duplex. If the line carries an 9% variable rate and you only draw that $60,000, the interest runs about $5,400 a year, or $450 a month, until you pay it back. The other $40,000 of the line sits available and costs you nothing while it stays untouched.
The two traits that define a HELOC are the draw period and the variable rate. During the draw period, often 10 years, you can pull and repay freely, and many lines allow interest-only payments. After that, the line closes to new draws and you amortize the balance. Because the rate floats with an index, the $450 monthly cost above can climb if rates rise, which is the part that bites.
Why it matters to a small landlord
A HELOC turns dead equity into a down payment without selling anything, which is how a lot of one-property owners get to two. The cost is that you have attached your home or an existing rental to a floating-rate balance, so a deal that pencils at 8% can stop penciling at 11%. Run the numbers before you draw: the rent on the new property has to cover its own mortgage plus the HELOC payment with room left over. Walk through a full deal in using a HELOC to buy a rental property, and compare it against pulling the same cash through a cash-out refinance, which locks the rate but resets your whole loan.
A HELOC is one of several ways to put your equity to work. Weigh it against a cash-out refinance when the deal is large and you want a fixed payment, and remember that the draw-and-repay rhythm is what makes a HELOC the financing engine behind the BRRRR method, where you recycle the same line across deal after deal.