Home Equity Lines of Credit for Fixing and Flipping Commercial and Multifamily Properties

Home Equity Lines of Credit for the Acquisition, Rehabilitation and Resale of Multifamily and Commercial Developments 

If you're an investor with a lot of equity built up in your primary residence, and you want to put that money to work by fixing and flipping a single-family home or multifamily property, a home equity line of credit, or HELOC, could be a great way to do it. HELOCs, which are similar in many ways to credit cards, are revolving lines of credit that permit borrowers to borrow against their home during a specified draw period, often between 5 and 10 years.

There is typically no minimum amount that the homeowner has to borrow, so they can take out as little or as much as they want, up to their credit limit. Once the draw period is over, the repayment period begins, which typically lasts another 20 years, giving these loans a full term of around 25 to 30 years. In most cases, there are no limits on what a borrower can do with their HELOC funds-- making them an ideal source of financing for a fix-and-flip transaction. Plus, since borrower/investors don't have to begin paying back the principal on their HELOCs for several years, it gives them ample time to look for the right property to invest in. 

HELOCs, Equity Limits, and Owner-Occupied Multifamily Properties 

Since the borrowing limit on a HELOC is based on the equity in your home, it may only provide you the funds to purchase a smaller multifamily property such as a duplex or triplex. However, if your home has lots of equity in it--say, a few million dollars, there's nothing to prevent you from using your HELOC funds to purchase a multifamily property of any size.

Most HELOCs allow combined LTVs of up to 85% for qualified borrowers, so, for example, if you had a home valued at $1.5 million, with $500,000 remaining on the mortgage, you would likely be able to take out a maximum of around $775,000 with a HELOC. Some investors will use the money from a HELOC as a downpayment for a hard money loan-- which can be risky, but greatly improves an investor's leverage and the size of the property they can buy. 

It's important to keep in mind that HELOCs, unlike investment property lines of credit (LOCs), typically need to be taken out on an owner-occupied residential property, usually a single-family home. If you live in and own a multi-unit property with 2-4 units, and rent the non-owner occupied units out to tenants, you may still be able to get a HELOC, though you may have to look a little bit harder for a lender. 



    Sample Terms For Fix and Flip Home Equity Lines of Credit

    Size:  Varies, limited by equity in the property and maximum LTV allowance 

    Term:  5-10 year interest-only draw period, 15-20 year repayment period 

    Maximum LTV/Leverage:  Up to 85% for single-family homes, may be slightly lower for 2-4 unit properties

    Interest Rate:  4.00 - 5.00% (variable interest rate, typically tied to LIBOR or 

    Closing Costs: 2.00 - 5.00%

    Credit Requirement:  640+ 

    Debt-to-income (DTI) ratio: 45% or less

    Origination Fees: Typically around 2.00% 

    Timing:  These loans can typically close in around 30-45 days 

    Advantages:

    • Low interest rates 
    • Allows investors to re-invest the equity in their current properties elsewhere
    • Funds can be used as the downpayment on a hard money loan  

    Disadvantages: 

    • Somewhat high loan origination fees 
    • Typically requires at least 30% equity in the property 
    • HELOC amount limited by the amount of equity in the property