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As an industry veteran of the small business lending space, I meet a lot of entrepreneurs who own and operate rental properties as part of their income stream. They'll often come to my team and me at Clarify Capital for advice on getting financing to help them grow other avenues of their business. One option we often discuss is what's called a HELOC, or a home equity line of credit.
A regular HELOC is a form of financing that allows you to borrow money on a revolving basis, via a line of credit, and is secured by the equity you own in your home. What a lot of people don't know, though, is that it's also possible to get a HELOC on an investment property you own, even if you don't personally reside in it, and keep renting it out.
Tapping this equity can give you access to capital that can go towards growing your business without having to sell the rental property. If you're a full-time real estate investor, for example, taking out a HELOC on one investment property could help you get the money to renovate another one before putting it on the rental market.
Or, say you own a landscaping company and have a rental property as a side hustle. A HELOC could give you the money to buy additional trucks and machinery to take on bigger commercial landscaping contracts.
Actually getting a HELOC on an investment property can be trickier than getting one on your primary residence, though. Fewer lenders, which include certain banks, credit unions, and specialty lenders, offer them. Plus, they generally have tighter qualification requirements and lending limits.
Here, I'll explain more about how they work, what it takes to qualify, who offers them, what you can expect to pay, and when they actually make sense to explore.
| Typical loan-to-value (LTV) or combined LTV ratio | Rate Range | What to Know | |
|---|---|---|---|
| Clarify Capital's HELOC for businesses | Up to $750,000 | As low as prime | Supports eligible one-to-four-unit investment properties and lets business owners use property equity for business financing |
| Banks | Often up to about 70% to 75% LTV/CLTV | Variable but generally higher than primary-residence HELOC rates; Published example: 8.25% to 8.75% | Availability varies widely by bank; investment-property programs can have tighter limits than primary-residence HELOCs |
| Credit unions | About 70% to 75% LTV is common among published investment-property programs | Current published examples range from 6.75% to 9.25% APR for well-qualified borrowers | Membership, location, and property restrictions may apply |
| Specialty/investor lenders | Up to 80% LTV in some programs | Varies widely by borrower, property and lender | May accommodate investment properties or alternative underwriting that conventional HELOC programs don't |
What Does an Investment-Property HELOC Cost?
Investment-property HELOCS generally work the same way that regular HELOCS on a primary home do in terms of structure. You get approved for a certain credit limit, and can draw from that source as you need to during what's called the “draw period.” Then comes the repayment period, when it's time to pay back your outstanding balance plus interest (only on what you have borrowed, not your full credit limit amount).
The amount you can borrow depends on your property's value, how much (if anything) you owe on it, and a lender's specific combined loan-to-value (CLTV) ratio limit. Investment-property HELOCs often have tighter borrowing limits than HELOCs on primary residences, and the exact limit varies by lender.
Here's a hypothetical example of how that works: Let's say your rental property is worth $500,000 and you still owe $250,000 on its mortgage. If a lender allows a maximum 70% CLTV, the property could support up to $350,000 in total debt secured by it. Subtract the $250,000 you still owe on the mortgage, and you could potentially have up to $100,000 in additional borrowing capacity through the HELOC.
Interest Rates
In general, HELOCS on investment properties tend to have higher rates than regular primary-residence HELOCS. That's usually because lenders view non-owner-occupied properties as carrying more risk than a borrower's primary residence. But, as always, your specific rate will depend on things like your creditworthiness, property, equity, CLTV, and lender.
Also, as is the case with many regular HELOCS, the rates are variable. That means that unlike some other types of loans where you lock in a certain rate for the duration of the term, the interest rate you pay isn't necessarily fixed while your line is open. It can rise or fall. Rates are often tied to a benchmark, like the prime rate, plus a lender-specific margin, so changes in that benchmark can affect the rate you pay.
To give you an idea of how the rate affects your actual cost, let's say you draw $50,000 from an investment-property HELOC. If your rate is 10% and you're making interest-only payments, your initial monthly payment would be about $417. If your variable rate later increased to 11%, that monthly payment would rise to about $458, assuming you still owed the full $50,000. (That's just an illustration; your actual cost will depend on how your benchmark rate changes, how much you draw, and how quickly you repay it.)
Fees and Closing Costs
Using your investment property as collateral means you might have some more up-front costs and/or fees than you would with other types of unsecured loans. Depending on the lender, you might have to pay appraisal fees, origination fees, application fees, legal fees, and other closing costs. Some lenders also charge fees specifically because the property is non-owner-occupied.
Be sure to clarify these details with your lender before finalizing your HELOC.
How To Know When a HELOC is the Right Move
Just because you have an investment property doesn't necessarily mean you should use it as collateral when borrowing. In general, I think getting a HELOC on a non-primary residence makes the most sense when you need flexible access to money over time, you have a clear business use for the capital, the expense justifies putting your property up as collateral, and you have enough equity to qualify.
For example, it may be the right financing path for your business if you need to:
Renovate a rental property
Finance repairs or improvements to another rental without draining the cash you need elsewhere
Expand your real estate portfolio
Access equity from one rental to help cover the costs of acquiring or preparing another investment property
Support cash flow
Draw money as needed to cover temporary cash-flow gaps, payroll, inventory, or other operating expenses
Buy business equipment
Purchase vehicles, machinery, technology, or other assets your business needs to grow
Expand your business
Finance costs like adding a location, taking on larger contracts, hiring staff, or increasing capacity
Handle unexpected expenses
Keep flexible borrowing capacity available for significant business costs you can't precisely predict
The Tradeoffs To Consider
Reduced future borrowing power
Your rental property is at risk
A big factor to keep in mind if you plan to use the HELOC specifically to grow your real estate portfolio is that borrowing against one rental property can affect your ability to finance the next one.
A HELOC adds debt and potentially a new monthly payment that a future lender may consider when calculating your debt-to-income ratio (DTI). A future lender may also look at whether you have sufficient cash reserves after accounting for your existing financed properties and the new transaction. So, while tapping equity can help finance your next investment, know that taking on that additional debt could also affect how much you qualify to borrow later.
More broadly, there's also a tradeoff between cost and risk. Because a HELOC is secured by real estate, you'll likely find that you get offered a lower rate than in some other forms of business financing. That said, if for some reason you can't repay what you borrowed, you're putting the property on the line.
Dave Ramsey, the bestselling personal finance author, for example, often advises his followers to avoid HELOCS entirely because of the risk and additional debt they bring on. For an established business owner or investor with steady rental income and a clear plan for the money, though, borrowing against that equity can be a calculated way to access capital, as long as the potential business benefit justifies the cost and risk.
What Lenders Will Look For
When you're applying for an investment-property HELOC, lenders are going to assess several factors about you, your finances, and your property to both make a decision on whether they will lend to you and, if they do, the terms of what they're offering. Those factors can include:
Property equity and appraised value
Income and other debts
Cash reserves
Existing mortgage debt and liens
Combined loan-to-value (CLTV) ratio
Property type, condition and occupancy
Credit score and history
Property documents and rental income
Why Business Owners Work With Clarify
Clarify Capital's 5.0 Trustpilot rating is the highest in the industry, and we've placed more than $1 billion across 50,000+ small-to-midsize businesses (SMBs).
Clarify matches you across 75+ vetted lenders and can get you a written offer in as quickly as 24 hours. Every applicant works with a U.S.-based lending advisor (not a chatbot or a call center) from application through financing.
Minimum Qualifications
For Financing Through Clarify Capital
$10,000 in monthly revenue
Your business must earn at least $10K per month in a business bank account.
500+ credit score
You can get approved with any credit score. But the better your credit rating, the better interest rates lenders offer. Your FICO score should be above 500.
Minimum six months in business
Your company should be operational for a minimum of six months. This shows business lenders that your company is sustainable and won't go out of business.
Have a business bank account
Your Clarify advisor will need three or four months of your most recent bank statements to verify income. This is just to see you're actually making $10K+ month in revenue.
Here's how the application process works through Clarify Capital:
Step 1:Apply online
It takes about two minutes. You'll need your business's legal name, EIN, time in business, monthly revenue, requested loan amount, owner contact information, and a credit authorization.
Step 2:Connect with a lending advisor
A U.S.-based Clarify Capital lending advisor reviews the application, runs a soft credit pull (no impact to your score), and requests 3 to 4 months of recent business bank statements.
Step 3:Get matched and funded
Clarify Capital works with 75+ vetted lenders and matches your profile with the right financing. Approvals often get a same-day offer (SBA loans can take longer).
If you're ready, my team and I at Clarify Capital can help you explore the best financing options for your specific situation. Get started and apply today.
Frequently Asked Questions
Here are answers to common questions I get about investment-property HELOCs and other similar types of financing.
Do Banks Do HELOCs on Investment Properties?
Yes, but not all of them. It depends on the bank. Investment-property HELOCs are less widely available than HELOCs on primary residences, and banks that do offer them may have stricter requirements around your credit, equity, and CLTV. You might also find there are lower borrowing limits or higher rates because the property isn't your primary residence.
Is a HELOC a Good Idea for an Investment Property?
It depends on what you're willing to risk and what you plan to use the money for. A HELOC can make sense if you have substantial equity, steady income to comfortably handle the payments, and a clear use for the capital that justifies the cost. But there are two big tradeoffs: you're putting your investment property at risk if you can't repay what you borrow, and the additional debt could reduce your ability to qualify for financing in the future.
How Much Would a $50,000 HELOC Cost Per Month?
If you draw $50,000 from an investment-property HELOC with a rate of 10%, an interest-only payment would initially be about $417 per month. If your variable rate later increased to 11%, that monthly payment would increase to about $458 (assuming you still owed the full $50,000). Your actual cost will depend on how your benchmark rate changes, how much you draw, and how quickly you repay it.
What Does Dave Ramsey Say About HELOCs?
Dave Ramsey generally recommends against HELOCs. His main arguments are that they put the property at risk and create a new debt that doesn't generate cash flow.
How Does Clarify Capital Protect My Business and Financial Information?
Clarify Capital follows SOC 2 (Service Organization Control 2) security principles designed to protect sensitive business and financial information. This includes safeguards such as secure data handling practices, controlled access to information, and ongoing monitoring to help protect your data throughout the application and funding process.
Bryan Gerson
Co-founder, Clarify
Bryan has personally arranged over $900 million in funding for businesses across trucking, restaurants, retail, construction, and healthcare. Since graduating from the University of Arizona in 2011, Bryan has spent his entire career in alternative finance, helping business owners secure capital when traditional banks turn them away. He specializes in bad credit funding, no doc lending, invoice factoring, and working capital solutions. More about the Clarify team →
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