You own a rental in Bakersfield, and over the years it has built up equity. Now you want to use that value to fix up the property, add a unit or buy your next rental. A HELOC on rental property is one way to do it. This guide explains how it works, who qualifies, how much you might borrow and what to watch for, in plain English.
Can You Get a HELOC on a Rental Property?
Yes, but fewer lenders offer them, and the rules are stricter than for a home you live in. Expect a lower borrowing limit, a higher interest rate and a closer look at your credit, savings and rental income.
What Is a HELOC?
A home equity line of credit (HELOC) is a line of credit you can borrow from again and again, up to a set limit, using your property’s equity as security (CFPB).
- Equity is what the property is worth minus what you still owe on it.
- Draw period: the time you can borrow, often about 10 years.
- Repayment period: after the draw period ends, you pay the balance back, often over 10 to 20 years. Payments are often much higher at this stage.
- Variable rate: most HELOCs have a rate that can change, so your payment can change too.
Example: you get a $50,000 line. You draw $20,000 for a new roof, so $30,000 is still available. As you pay back the $20,000, that amount opens up again.
How a Rental HELOC Differs From One on Your Home
| Feature | HELOC on the home you live in | HELOC on a rental |
|---|---|---|
| Lenders | Many | Fewer |
| Borrowing limit (all loans combined) | Up to about 85% of value | Often 70% to 80% of value |
| Interest rate | Lower | Usually higher |
| Review | Standard | Stricter, with more proof of income and savings |
Lenders see rentals as riskier, because owners may put their own home first if money gets tight.
Eligibility Criteria for a HELOC on a Rental Property
Every lender sets its own rules, but the same checks come up again and again. These are the ranges where major lender and credit sources agree:
| Requirement | What lenders often look for | What it means |
|---|---|---|
| Credit score | 700 to 720 or higher | Your history of paying debts on time |
| Combined loan-to-value (CLTV) | 70% to 80% at most | Your mortgage plus the HELOC, as a share of the property’s value |
| Equity left after the HELOC | At least 20% | A cushion of ownership you keep |
| Debt-to-income ratio (DTI) | 43% to 50% or lower | Monthly debt payments compared with monthly income before taxes |
| Cash reserves | At least 6 months of payments | Savings to cover your loans if the rental sits empty |
| Proof of rental income | Leases and rent records | Shows the property earns steady rent |
| Appraisal | In-person appraisal | A licensed appraiser confirms the value |
- DTI example: you earn $8,000 a month before taxes and pay $3,200 a month toward all your debts. Your DTI is 40%.
- Reserve example: if your mortgage and HELOC payments total $2,000 a month, six months of reserves is $12,000.
- Documents to gather: recent tax returns, bank statements, proof of income, current leases, rent records, and your mortgage statement.
Some lenders count part of your rental income when they figure your DTI, so ask each lender how it treats rent.
How Much Could You Borrow? A Bakersfield Example
Say your rental is worth about $420,000, close to the Bakersfield median sale price of $419,807 (Redfin, three months ending August 2026). As an example, you still owe $200,000 on the mortgage.
| Lender limit | Total loans allowed | Possible HELOC |
|---|---|---|
| 70% | $294,000 | $94,000 |
| 75% | $315,000 | $115,000 |
| 80% | $336,000 | $136,000 |
The math is simple: multiply the value by the lender’s limit, then subtract what you owe. Your real number depends on the appraisal and the lender.
Smart Ways to Use a Rental HELOC
- Add a unit. Owners who add an ADU in Bakersfield can create a second stream of rent on the same lot.
- Make repairs that protect or raise rent, such as a new roof or updated kitchen.
- Fund a down payment on your next rental.
- Keep a cash cushion for vacancies or a big repair you did not plan for.
Is HELOC Interest Tax Deductible on a Rental Property?
Often, yes, but it depends on how you use the money, not just which property backs the loan.
- Money used for the rental: interest can be a rental expense. IRS Publication 527 explains that loan money used for something other than the rental generally can’t be deducted as a rental expense.
- A HELOC on your own home: interest counts as home mortgage interest only if the money is used to buy, build or substantially improve that home (IRS Publication 936). If you use it for a rental, it may be deductible in another part of your return.
- Improvements: larger upgrades are usually added to the property’s cost and deducted over time through rental property depreciation.
Keep HELOC money in a separate account, save receipts and talk to a tax professional.
Does a HELOC Raise Your Property Tax in California?
No. Under California Revenue and Taxation Code section 62(c), creating a security interest, such as the lien a HELOC places on your property, is not a change in ownership. Your Proposition 13 tax base stays the same.
HELOC vs. Home Equity Loan vs. Cash-Out Refinance
| Option | How you get the money | Rate | Often a fit for |
|---|---|---|---|
| HELOC | Draw as needed | Usually variable | Projects paid over time |
| Home equity loan | One lump sum | Fixed or adjustable | One known cost |
| Cash-out refinance | A new, larger loan replaces your mortgage | Fixed or adjustable | Large amounts, if the new rate makes sense |
Risks to Weigh First
- Your rental is the collateral. If you can’t repay, you could lose the property.
- Payments can rise with a variable rate, and they often jump when repayment starts.
- Lenders can freeze or cut your line if the property’s value drops or your finances change.
- Vacancies happen. Plan reserves so a few empty months do not lead to a missed payment.
Frequently Asked Questions
Can a HELOC be taken out on a rental property?
Yes. Some banks and credit unions offer HELOCs on rental homes, but fewer lenders do than for a home you live in. Expect a lower borrowing limit, often 70% to 80% of the property’s value for all loans combined, plus a higher rate and a closer look at your finances.
How much would a $50,000 HELOC cost per month?
It depends on your rate. During the draw period, many HELOCs let you pay interest only, which is $50,000 times your rate, divided by 12. Each 1 percentage point of rate adds about $41.67 a month. Once repayment starts, you also pay principal, so payments are often much higher.
What is the 50% rule in rental property?
The 50% rule is a quick estimate that about half of a rental’s rent goes to operating costs, such as property taxes, insurance, repairs and empty months. It does not include the mortgage or a HELOC payment. Check that what is left can cover both before you borrow.
Is HELOC interest tax deductible on a rental property?
Often, yes, when you use the money for the rental. The IRS looks at how the money is spent. Interest on funds used for the rental can be a rental expense, while interest on money used for personal costs generally cannot. Keep records and talk to a tax professional.
Can I use a HELOC for a down payment on another rental?
Yes, if your lender allows it. You draw from the line and use the cash toward the new purchase. Just remember you will then carry two debts, the HELOC and the new mortgage, so make sure the new rental’s rent can help cover both payments.
Put Your Rental Equity to Work in Bakersfield
A HELOC on rental property can help you grow, as long as the numbers work and you keep enough savings for slow months. Compare a few lenders, check the tax rules and borrow only what the rent can support.
A well-run rental makes every loan easier to carry. Real Property Management Bakersfield offers full-service property management, from tenant screening to rent collection and maintenance. Call (661) 306-4999 or visit us at 2008 21st St, Suite 200, Bakersfield, CA 93301.
This content is provided for general informational and educational purposes only and does not constitute financial, legal, tax, or investment advice. Readers should consult with licensed professionals regarding their specific circumstances.
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