You use lines of credit for real estate investing. But which are the right ones?
There are two types of lines of credit you can look at as a real estate investor: bank lines of credit vs HELOCs.
A HELOC (home equity line of credit) can go on each unit you own. This goes for your owner-occupied home, or each of your rentals.
A bank line of credit is one line of credit that covers multiple properties. This is how investors get huge lines of credit to purchase properties anytime, anywhere.
The flexibility of either of these lines of credit is unmatched. You can use these funds to:
- Close on a property at auction, where traditional financing takes too much time.
- Use it for your rehab costs, instead of putting in escrow draw requests to your lenders.
- Paying contractors, other payroll, overages, or other business expenses that a primary loan may not cover.
What These Lines of Credit for Real Estate Investing Have In Common
Both lines of credit are a mortgage, or lien, on a property, typically in junior position. This means there’s usually a mortgage on the property already, so the lien for this line of credit comes in second position.
Lines of credit don’t work like a loan for real estate investing – where you take out the money, pay it back, and you’re done. These lines of credit work more like a credit card. You can take the money out, then pay it back, then take some more out, and re-use it over and over.
Also different from a loan, with a line of credit you never have to ask permission to use them. You don’t have to re-qualify each time you do a deal.
Lines of credit give you speed and flexibility in your real estate career.
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