When to Use a HELOC (and When to Walk Away)

A Practical Guide for Investors With Real Numbers and Scenarios

If you’ve been in real estate for a while, you’ve probably heard about using a HELOC—a Home Equity Line of Credit—as a way to fund deals, cover unexpected expenses, or fuel your next big project.

A HELOC can be an incredibly useful tool. It offers flexibility, access to capital when you need it, and often lower interest rates than credit cards or personal loans. But it’s not a magic money tree, and there are times when using a HELOC is smart—and times when it can put you in a risky position.

Let’s break down exactly when to use a HELOC, with real-world scenarios and numbers, and when to walk away.

When to Use a HELOC (With Real-Life Scenarios)

A HELOC can be a smart move when you need short-term capital to fund a value-add project—like a light remodel or a BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy.

For example:

  • You need $40,000 to update kitchens, bathrooms, and flooring in a small duplex.

  • Your HELOC offers an 8% interest rate with interest-only payments.

  • The monthly payment on $40,000 would be approximately $266 per month.

If the plan is to refinance into long-term debt or sell the property within 6–12 months, using a HELOC can save you from paying higher hard money rates (often 10–12%) or draining your cash reserves.

Use it when:

  • You have a clear exit strategy, such as a refinance or sale.

  • The project adds significant value, either through appreciation or increased cash flow.

  • You can repay the balance within a reasonable timeframe.

Sometimes, investors have capital tied up in one deal and need funds for the next. A HELOC can help you cover a down payment, earnest money deposit, or closing costs temporarily.

For example:

  • You have a property under contract for $300,000 and need $15,000 in earnest money within three days.

  • Your previous property is under contract to sell, but closing is in 30 days.

  • The HELOC lets you front the earnest money, then pay it off when your sale closes.

Use it when:

  • The gap is short-term, ideally 30–60 days.

  • You have confirmed funds coming in to repay it.

  • You want to avoid liquidating other investments or reserves.

Unexpected issues happen. A water heater fails, a roof needs patching, or a foundation crack demands immediate attention.

If you don’t have a large capital reserve, a HELOC can serve as a low-cost emergency fund to handle these situations without disrupting your cash flow.

For example:

  • A major repair costs $8,000.

  • Your HELOC allows you to borrow at 8.5%, with a payment of approximately $57 per month per $8,000 drawn.

  • You cover the repair, then pay it down over the next 6–12 months.

Use it when:

  • It’s a true emergency or unexpected expense.

  • You plan to replenish the HELOC balance as soon as possible.

  • You’re disciplined about not letting the balance grow unchecked.

When to Walk Away From a HELOC

While HELOCs offer flexibility, they are not free money—and they are not the right tool for every situation.

If you’re using a HELOC to cover ongoing cash flow gaps without a clear plan to repay, it’s a red flag. HELOCs are variable-rate debt, and if interest rates rise, your payments could spike.

For example:

  • Borrowing $50,000 on an 8.5% HELOC equals $354 per month interest-only.

  • If rates rise to 10.5%, that payment jumps to $437 per month.

Over time, this can eat into your returns—or worse, leave you in a cycle of relying on debt.

HELOCs should be used to build assets, not fund liabilities. Using a HELOC for a vacation, a new car, or personal expenses is a risky move that can jeopardize your property if you can’t repay the balance.

Equity is not cash. It’s potential wealth, not guaranteed liquidity.

Using a HELOC to fund the down payment, renovation, and holding costs on a property can stretch you too thin. If the market shifts, the project takes longer than expected, or a refinance doesn’t go through, you could be left overleveraged.

Smart investors use HELOCs to fill specific, short-term gaps—not to fund an entire deal.

The Bottom Line: Use It as a Tool, Not a Crutch

A HELOC can be a powerful tool for investors—when used wisely. It’s best for:

  • Short-term funding needs

  • Value-adding projects with a clear exit strategy

  • Emergency expenses

It’s not ideal for:

  • Ongoing cash flow shortages

  • Personal spending

  • High-risk, over-leveraged deals

Think of a HELOC as a bridge, not a permanent solution. Use it to get from Point A to Point B, then pay it down and move forward.

Stephen Husted