Should You Use a HELOC or Home Equity Loan to Buy a Second Property?

If you’ve built up equity in your home, it can be tempting to tap into it — especially when social media is filled with success stories about using a HELOC (Home Equity Line of Credit) or home equity loan to buy a second property or jump into real estate investing.

But is that a smart move? Or a shortcut that could lead to trouble?

In this article, we break down the real risks and opportunities of using your home equity to invest in real estate. Whether you're eyeing a rental property, vacation home, or fixer-upper, we’ll help you understand when this strategy makes sense — and when it might be too risky to justify.

First, the Basics: What Is a HELOC or Home Equity Loan?

A HELOC is a revolving line of credit secured by your home. You can borrow against your available equity during a “draw period,” typically 5 to 10 years, and only pay interest on what you use. Most HELOCs have variable interest rates.

A home equity loan (sometimes called a second mortgage) is a lump-sum loan with a fixed interest rate and predictable payments over a set term.

Both allow you to convert your home equity into cash. But both come with important differences in terms of flexibility, interest rate risk, and repayment.

Why Some Investors Use Home Equity to Buy More Property

Real estate forums, F.I.R.E. (Financial Independence, Retire Early) groups, and TikTok influencers often promote this idea:

“Use the equity in your home as leverage to buy an income property. Use the rent to pay the loan. Build wealth with none of your own money.”

It sounds like a hack, and sometimes, it actually can work. But let’s break down the opportunity and the risks, especially if you're considering this strategy in today’s higher-rate, lower-margin market.

When Using a HELOC or Home Equity Loan to Buy a Second Property Might Work

There are scenarios where this can be a responsible, strategic move:

1. You Have Substantial Equity and a Strong Cash Flow Buffer

If you have 30% or more equity in your primary residence and can comfortably afford a second property (even without rental income), you may be in a good position to use your equity as a down payment or short-term funding source.

2. You’re Buying Below Market Value or Planning Quick Value-Add Renovations

If you're experienced in renovations or investing, and you've found a property with upside potential, tapping into your equity to act quickly might make sense.

3. You Have a Clear Exit Plan

Planning to refinance, sell, or pay off the HELOC within a short window? This reduces your exposure to variable-rate risk and long-term overleveraging.

The Real Risks: What Most Online Advice Leaves Out

Many online discussions treat home equity as “free money”. But borrowing against your home always carries risk. Here’s what often gets glossed over:

1. HELOCs Usually Have Variable Interest Rates

A HELOC rate can rise substantially over time. In 2020, rates were under 4%. In 2024, many were closer to 9% or higher, which can directly and immediately impact your monthly payment.

If you’re relying on rental income to cover the HELOC, rising rates can eat into (or completely erase) your cash flow.

2. You’re Putting Your Primary Home at Risk

When you use a HELOC or second mortgage, your primary residence is the collateral. If your investment property underperforms and you can’t repay the loan – your primary residence is on the line.

That’s a different level of risk than using a traditional investment property mortgage.

3. Cash Flow Isn’t Guaranteed

Real estate isn’t always passive income. Unexpected repairs, vacancies, insurance hikes, or market downturns can turn a seemingly solid investment into a financial drain.

4. Short-Term Interest-Only Structures Can Be Misleading

Many HELOCs have interest-only payments during the draw period. Once the repayment period begins, your monthly payments can increase sharply – especially if rates have gone up.

If your financial model only works with low initial payments, it may not be sustainable long term.

Questions to Ask Yourself Before You Tap Your Home Equity

Before using a HELOC or home equity loan to invest, consider:

• What’s my loan-to-value (LTV) after the new debt? Staying under 80% is generally considered safer. Learn how to calculate your LTV with our article “What Is LTV?”.

• Can I cover the full HELOC or loan payment without rental income? If not, you're relying on an unpredictable cash flow to keep you afloat.

• What happens if rates rise 2–3% over the next few years? Run the numbers on both your HELOC and your investment returns.

• Do I have emergency savings in place? Tying up home equity reduces your financial flexibility across the board.

• Is this part of a long-term strategy — or a quick bet? Real estate is rarely a get-rich-quick play. Be sure you’re prepared to be in it for the distance.

So… Should You Use a HELOC or HELOAN to Buy a Second Property?

Here’s the short answer:

It can be a smart strategy if you have strong equity, reliable income, experience managing property, and a clear plan with contingencies.

It’s risky if you’re stretching to qualify, relying on rental income to break even, or not factoring in interest rate fluctuations.

Alternatives to Consider

If you're looking to buy a second property but aren't sure about borrowing against your home, you could explore:

• Saving for a traditional down payment

• Partnering with co-investors to reduce your exposure

• Looking into equity-sharing products for your primary home (avoid monthly payments)

• Waiting until interest rates or home prices are more favorable

Real Estate Is a Path — Not a Shortcut

Using home equity to buy a second property isn't inherently good or bad. But it's not a shortcut to wealth. It's a financial tool that can amplify either gains or losses.

If you’re serious about investing in real estate, the best path forward starts with a full view of the numbers, a respect for the risks, and a long-term mindset. Whatever route you choose, be realistic about your budget, understand your repayment timeline, and talk to a trusted advisor before signing on the dotted line.

At Unison, our experts are here to help you find the right path. And for whatever makes the most sense for your situation, we can bring unique, innovative solutions to the table – with a focus on transparent, human-to-human service. We helped pioneer the equity sharing home loan, and with our HELOC/HELOAN products, we can help you access up to 90% of your home’s equity (up to $500,000) – with hassle-free closing, no usage restrictions, and no prepayment penalty. We’re able to consider FICO scores of 640+, and second properties can be eligible, too. Ready to find the right fit for your needs?

Disclaimer: This content is for informational and educational purposes only and does not constitute financial, legal, or lending advice. Loan terms and availability vary by lender and state. Consult a qualified financial professional or lender for personalized guidance tailored to your situation.

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