Home Equity Loan

A home equity loan or home equity line of credit (HELOC) borrows against the equity in a property you already own, as a second loan behind the existing mortgage. It is the alternative route to the same equity a cash-out refinance reaches, and a common source of the cash that funds a BRRRR purchase in the first place.

As an exit, a HELOC on the finished property leaves the first loan in place and adds a smaller, usually variable-rate second. On investment property these are harder to get and capped at lower combined LTVs than a cash-out refinance, so most BRRRR investors refinance instead.

As a source, a HELOC on a primary residence or another rental funds the down payment gap, rehab and holding costs at a rate well below hard money. The refinance on the BRRRR property then pays the HELOC back down, ready for the next deal. It is the closest thing to doing BRRRR with no cash of your own without a partner or private lender.

Further reading: Home Equity Loan on Wikipedia.