If you own one or more rental properties, it’s possible that you have built up some equity in these investments. So, if you’re looking for a way to finance additional real estate and/or to make some renovations, is taking a home equity loan or line of credit a possible option?
The answer is yes…
But there are some things that you need to know before you move forward. For instance, not all lenders are willing to underwrite a home equity loan using an investment property as collateral. That’s because a lender takes on more risk making loans against properties that are not the borrower’s primary residence.
Home equity loans are essentially second mortgages that must be paid back each month, in addition to the first mortgage payment. Therefore, if a borrower runs into financial hardships, it is possible that the second mortgage payment may not be made.
If you are able to secure a home equity loan against a rental property, it is likely that a lender will charge you a higher rate of interest – also as a way to compensate against the higher risk it is taking on.
An alternate option could be a home equity line of credit, or HELOC. This allows you to simply access the amount of money you need and then pay back what you have withdrawn. As an example, if you secure a HELOC of $15,000 but you only need $7,000 at this time, then you would repay that $7,000 (with interest). The remainder of the credit line would also be available to you.
Managing and maintaining rental property can require both money and time. So, if you own residential investment property in the Central Florida area and you’d like to hand over some of these tasks – and recoup more time for yourself, contact us for more details on what a professional property management team can do for you.