Real estate investors know that cash is king. Having ready access to capital is critical for active real estate investors as potential properties hit the market. Perhaps there are a few instances where anForeign Investors investor knows that a property will be coming to market soon but most often they scour the markets on their own or with affiliate partners. They don’t want to have most or all of their funds in real estate when an opportunity presents itself. The answer lies in the equity they have in their properties. When cash is needed, the quickest way without hitting the bank account is to take out an equity loan. There are two primary types of equity loans- an equity loan and a home equity line of credit, or HELOC.

 

A standalone equity loan is a lump sum paid out to the owner and is paid off over time with monthly payments. The equity loan can be a fixed rate loan or an adjustable and is fully amortized. Each month, the borrower makes a payment toward the outstanding balance. A home equity line of credit, or a HELOC, is a line of credit very much like a credit card. Instead of a lump sum payout the HELOC allows the borrowers to take out funds as they wish and pay down the balance all or in part each month. HELOCS do require the borrowers to take out some cash at a predetermined time, but the difference between an equity loan and a HELOC is the equity loan is an installment loan and a HELOC is revolving account. Is one better than the other for real estate investors?

Not really. Each has its own advantages depending upon the situation. When an investor needs funds for a specific purpose and wants to lock in a low fixed rate, the equity loan might be the better choice. For those who want to tap into equity when needed and repay the loan to replenish the credit line, the HELOC provides that convenience. For real estate investors who want to preserve their capital for property acquisitions yet still have ready cash available, either choice can be a good option.