If you’re a homeowner, there’s a good chance you’ve built up equity in your current property—especially with the appreciation we’ve seen in recent years. But did you know that this equity can be a powerful tool for expanding your real estate portfolio and building long-term wealth?
As a real estate and mortgage advisor team, we regularly help homeowners turn their primary residence into a stepping stone for future investment. Whether you’re thinking about buying a second home for vacation use, or you’re interested in purchasing an income-producing rental property, leveraging your home equity can be one of the most strategic moves you make.
Home equity is the difference between your home’s current market value and the remaining balance on your mortgage. For example, if your home is worth $600,000 and you owe $350,000 on your mortgage, you have $250,000 in equity. This equity increases as your home appreciates in value and as you pay down your mortgage.
Instead of letting that equity sit unused, you can convert a portion of it into liquid funds and use it to invest in real estate—without needing to sell your home.
Investing in real estate has long been considered a reliable path to wealth. Unlike stocks or other volatile assets, real estate offers both tangible value and multiple ways to generate returns: through appreciation, rental income, and tax advantages.
Here are some reasons why homeowners use their home equity to buy additional properties:
Passive income through long-term rentals or short-term vacation rentals.
Diversification of investment portfolios beyond retirement accounts or market-based assets.
Appreciation potential in growing markets or vacation destinations.
Tax deductions related to mortgage interest, property taxes, and depreciation.
Lifestyle benefits of owning a second home in a favorite getaway location.
There are several ways to tap into your home equity to purchase a second home or investment property. Each option has different benefits depending on your financial situation and goals.
Popular financing strategies include:
Cash-Out Refinance
This replaces your existing mortgage with a new, larger one, allowing you to cash out some of your equity. It’s a great option if mortgage rates are lower than your current rate or if you’re consolidating debt as part of the process.
Home Equity Line of Credit (HELOC)
A HELOC is a revolving line of credit secured by your home. You can draw from it as needed, making it ideal for funding down payments or renovations. It’s flexible and interest-only during the draw period.
Home Equity Loan
Sometimes called a second mortgage, this provides a lump sum based on your equity, with a fixed interest rate and repayment schedule.
DSCR Loans (Debt Service Coverage Ratio Loans)
These loans are specifically for investment properties. Instead of using your personal income to qualify, lenders use the property’s rental income. This makes DSCR loans ideal for self-employed borrowers or those with high existing debt-to-income ratios.
Second Home Loans
These are traditional loans used to purchase a vacation or seasonal-use home. They typically offer better rates than investment property loans but come with stricter usage requirements.
Low Down Payment Investment Property Loans
While many investment property loans require 20–25% down, some programs allow for as little as 15% down, with options that include no mortgage insurance.
First-Time Investor Programs
If you’re buying your first rental property, there are specific programs that offer easier qualifying guidelines or reduced down payment requirements.
Using your home equity to buy a second home or investment property can be a smart, strategic way to build wealth through real estate. With the right plan—and the right team—it’s more attainable than many homeowners realize.
If you’re curious about what your equity could do for you, we’re here to help. As a real estate and mortgage advisor team, we can walk you through available options, calculate your borrowing power, and help you identify properties that fit your goals.
Ready to explore your investment opportunities? Let’s connect and create a strategy tailored to your financial future.
