Can You Use a Home Equity Loan for Investment Property?

Updated January 19, 2025

Investment properties can be a great way to build passive income and 澳洲幸运5开奖号码历史查询:diversify your investment portfolio, but breaking into real estate investing takes a large chunk of change. If you don’t have cash lying around and don’t want to wait until you’ve saved it, you might be interested in using 澳洲幸运5开奖号码历史查询:a home equity loan to purchase 澳洲幸运5开奖号码历史查询:investment property. While you can use the loan for this purpose, the intere꧂st isn't tax deductible and you risk losing your home i♉f you fail to make payments.

Key Takeaways

Higher 澳洲幸运5开奖号码历史查询:interest rates have led to a slight slowing of the housing market.
You can make money in real estate in a slower market, but it takes skill.
Know the risks before you borrow against your house. You risk losing your home if you can't make the repayments.

Using a Home Equity Loan♑ to Invest in Real Eꦰstate

澳洲幸运5开奖号码历史查询:Home equity loan proceeds can be used on anything you choose, including in🔯vesting in real estate. To use a home equity loan to invest in real estate, you must have some equity in your existing property, decent credit, and proof of income sufficient to pay back the loan.

Once your home equity loan has closed and you have picked out an investment property, you can use the proceeds from your home eq🌳uity loan in any way you choose on your investment property, or anything else. The cash ✱is yours to use as you wish after the loan closes.

However, just because you can use your home equity loan to invest in real estate doesn’t mean you should.

Important

You can only get a 澳洲幸运5开奖号码历史查询:tax deduction on the 澳洲幸运5开奖号码历史查询:interest portion of your home equi♔ty loan on the amount used to buy, build, or substantially improve the borrower’s home on which the home equity loan is based. If you’re using a home equity loan to invest in a separate property, you cannot get a tax deduction.

Risks of Usin♌g a Ho🐼me Equity Loan to Invest in Real Estate

Home equity loans are loans that allow you to borrow against your home’s equity for a 澳洲幸运5开奖号码历史查询:lump-sum payout that you pay back over time with a 澳洲幸运5开奖号码历史查询:fixed interest rate and fixed monthly payments. They carry two main risks:

You could default on your loan and lose your home if you can’t keep up with payments.
Your home’s value could decrease and you could become 澳洲幸运5开奖号码历史查询:underwater on your loans, meaning that you can’t move or sell your home without paying money to your lenders.

Real Estate Investment Risks

Nobody can predict the future of the housing market with 100% accuracy, but the housing market has slowed due to high interest rates and low housing inventory. Investing in real estate as the market is slowing means it could be difficult for you to make money in the near future after accounting for 澳洲幸运5开奖号码历史查询:closing costs, high interest payments, and any 澳洲幸运5开奖号码历史查询:renovation expenses you may have.

While 澳洲幸运5开奖号码历史查询:real estate investing has been a relatively easy way for people with even minimal knowledge to have fantastic gains over the last several years, don’t confuse someone else’s luck investing in a hot market with 澳洲幸运5开奖号码历史查询:true success. Learning to analyze real estate markets, rental markets, and potential 澳洲幸运5开奖号码历史查询:return on investment takes skill and specialized knowledge that many spend decades build🍌ing.

If you’re looking to invest so you can flip houses, that may be more difficult to currently profit from. If you’re interested in purchasing investment property to rent out to tenants, then you need to be very thorough in your research on the rental market and the rules and regulations in the area in which you’re investing.

Ask yourself how long you can afford to pay the mortgage and a home equity loan on your primary residence in addition to any loans that you may have on the investment property. If you can’t afford to maintain those payments without any rental income for more than a year, then taking out a home equity loan to 澳洲幸运5开奖号码历史查询:invest in rental real estate could cause you to lose your home. Make sure that you’re comfortable with that level of risk for the potential reward of passive income before you take out a home equity loan.

Is Investing in Real Estate Risky?

All investing is risky, but 澳洲幸运5开奖号码历史查询:real estate investing carries its own potential dangers. The property in which you’ve invested could decrease in value over time. If you’re investing in property and renting it out, your property could be damaged by tenants or you could face long periods of nonpayment while you go through the expensive process of evicting someone.

Can I Use a Home Equity Loan To Invest in a Real Estate Investment Trust (REIT)?

You can use your home equity loan’s proceeds on anything you like, including investing in a 澳洲幸运5开奖号码历史查询:real estate investment trust (REIT). Investing in an REIT can mitigate some of the risks of individual real estate investing, but they have come under recent fire for buying up properties in areas and contributing to the housing crisis. Additionally, eroding your home’s equity to invest carries the risk of 澳洲幸运5开奖号码历史查询:foreclosure 🥃if you can’t afford to pay back your home equity loan.

Which Is Better for Investing, a Home Equity Loan or a Home Equity Line of Credit (HELOC)?

That depends. If you only intend to invest in one property and you know the exact amount needed, then a home equity loan will most likely have a lower interest rate over time than a 澳洲幸运5开奖号码历史查询:home equity line of credit (HELOC). If you intend to invest in many properties over time, then a HELOC allows you to pull equity and pay it off multiple times with one product and is more convenient than taking out and paying off multiple home equity loans over the same time period.

The Bottom Line

Investing in real estate was easier to profit from over the last few years than it is likely to be in the future. While someone on social media may have doubled their money flipping homes in the last two years, anyone who invested throughout the housing crisis of the early aughts will tell you that it’s not easy in a slower market. Learn as much as you can about real estate investing, and make sure that you have the cash to cover downturns or long periods of zero rental income. If you can’t, then don’t risk the roof over your head with a home equity 澳洲幸运5开奖号码历史查询:loan to invest in real estate.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.