If you take out a personal loan or use a credit card for improvements on your investment properties, you’re missing out on a valuable tax deduction. One of the most financially savvy ways to fund such improvements is with a HELOC loan.
A home equity line of credit (HELOC) is secured by the borrower’s home and acts as a revolving credit line similar to a credit card. In addition to a low interest rate, borrowers can deduct the interest paid on HELOC money used to improve or repair their properties. Since HUD properties are sold “as-is” (and have often been used as a punching bag for tenants upset about an impending foreclosure), this tax deduction can be a huge asset.
Unfortunately, lending standards have tightened since the housing market decline and it is somewhat difficult to qualify for a HELOC now. However, those that can qualify will have access to extremely low interest rates. (The prime rate was recently slashed to 5.25% – the sixth cut in the past six months).