8 Ways to Use Your Home Equity to Buy a Rental Property in 2027

Summary of 8 Ways to Use Your Home Equity to Buy a Rental Property in 2027

by BiggerPockets

39m•October 28, 2026
Listen to Episode

Overview of 8 Ways to Use Your Home Equity to Buy a Rental Property in 2027

In this episode, Ashley Kerr and Tony J. Robinson break down eight ways homeowners can tap into home equity to fund a rental-property purchase or investment strategy. The core message: equity can be a powerful wealth-building tool if used intentionally, but the wrong structure can increase risk, raise monthly costs, or even put your home on the line. The hosts compare each option by flexibility, cost, and risk so listeners can choose the best fit for their situation.

The 8 Ways to Use Home Equity

1. HELOC (Home Equity Line of Credit)

  • A revolving credit line secured by your home.
  • Usually interest-only during the draw period, then repaid later on a schedule.
  • Best for investors who want flexibility and don’t want to refinance out of a low-rate mortgage.
  • Can be used for:
    • Down payment
    • Rehab costs
    • Full purchase of a small property
  • Pros: Flexible, reusable after repayment, no interest until funds are drawn.
  • Cons: Variable rate risk; payments can rise if rates increase.

2. Home Equity Loan

  • A lump-sum second mortgage with fixed repayment terms.
  • You receive all the money upfront and begin making payments immediately.
  • Best when you know exactly how much you need and where it will go.
  • Pros: Predictable fixed payment, accountability, easier budgeting.
  • Cons: Less flexible than a HELOC; costs begin immediately even if funds sit unused.

3. Cash-Out Refinance

  • Replaces your current mortgage with a new, larger loan and gives you the difference in cash.
  • Can make sense if:
    • Rates are lower than your current loan, or
    • The equity unlocked creates a much better investment opportunity.
  • Pros: One loan, one payment, can access significant equity.
  • Cons: You lose your original mortgage rate; current rate environment may make this expensive.

4. Line of Credit on a Rental Property

  • Similar to a HELOC, but secured by an investment property instead of a primary residence.
  • Often called a commercial mortgage line of credit by lenders.
  • Harder to find, but useful if your primary home is already encumbered or you want to keep it untouched.
  • Pros: Flexible access to capital without touching your primary.
  • Cons: Fewer lenders offer it; may require LLC ownership and tighter insurance requirements.

5. Use Equity for a BRRRR Deal

  • Use equity financing to buy, rehab, rent, and refinance a property.
  • Equity can cover:
    • Purchase price
    • Renovation costs
    • Sometimes closing costs or reserves
  • After the refinance, pay back the HELOC or other borrowed funds and recycle the capital.
  • Pros: Strong strategy for scaling and reusing capital.
  • Cons: Sensitive to interest-rate changes, appraisals, and rehab overruns.

6. Home Equity Investment / Shared Equity Agreement

  • A company gives you cash in exchange for a share of your home’s future appreciation.
  • Usually no monthly payment.
  • Can be easier to qualify for if your debt-to-income ratio is high.
  • Pros: No monthly debt service, can free up cash quickly.
  • Cons: One of the riskiest options; can include a maturity date and potential forced sale if you can’t settle the obligation.

7. Sell Your Primary Residence

  • If you qualify for the capital gains exclusion, you may be able to access equity tax-free:
    • Up to $250,000 if single
    • Up to $500,000 if married filing jointly
  • Requires living in the home for 2 of the last 5 years.
  • Pros: Potentially the cleanest way to unlock large tax-advantaged capital.
  • Cons: You give up the property and future appreciation.

8. Use Equity in a Partnership

  • Bring equity into a partnership to fill a gap in funding.
  • Examples:
    • You bring the down payment, partner brings rehab capital
    • You bring capital, partner brings credit/DTI for financing
  • Pros: Lets you participate in deals even if you can’t fund or qualify for them alone.
  • Cons: Requires trust, alignment, and clear legal agreements.

Key Takeaways

Best Uses by Situation

  • Want flexibility? HELOC
  • Want fixed payments? Home equity loan
  • Want to keep your first mortgage intact? HELOC or rental-property line of credit
  • Want to scale via BRRRR? HELOC or other short-term equity tool
  • Need a last-resort option? Shared equity agreement

Major Risks to Watch

  • Variable rates can make deals less profitable over time.
  • Refinancing out of a great mortgage can be expensive.
  • Some lenders have strict requirements around LLCs, insurance, and lien position.
  • Equity funding should always come with a repayment plan or exit strategy.

Smart Investor Mindset

  • Don’t just ask, “How much equity can I pull?”
  • Ask:
    • What is the cost of the money?
    • What is the repayment plan?
    • Will the deal still work if rates rise or the appraisal comes in low?
    • Is this short-term capital or long-term leverage?

Final Recommendation

The hosts’ overall advice is to treat home equity as a tool, not free money. The best strategy depends on your risk tolerance, current mortgage rate, credit profile, and the deal you’re trying to buy. For many investors, the most practical options are a HELOC, a cash-out refinance, or a partnership structure—as long as the numbers still work after borrowing costs are included.