Example: using home equity to buy a first rental property (a $700K duplex)

The borrower had strong equity in their home but not $140,000 sitting in cash for a 20% rental down payment. They also worried their personal income alone wouldn't qualify them for a second property on top of their existing mortgage.

A bank had looked at the file on personal income only, with a conservative view of the rental income, and come back light.

A HELOC on the principal residence funds the 20% down payment (within the 65% HELOC and 80% combined loan-to-value limits), turning dormant equity into the investment without touching the existing first mortgage. The HELOC payment counts in the borrower's debt ratios. Interest on money borrowed to earn rental income may be tax-deductible, because deductibility depends on how the borrowed funds are used; confirm with an accountant.

For the rental mortgage itself, we placed it with a lender that uses a favourable rental-offset/add-back method, so the duplex's projected rent strengthened the qualification rather than being heavily discounted. We stress-tested the combined picture so the borrower bought something that genuinely cash-flows after the HELOC carrying cost.

In this example the borrower buys a first rental without liquidating savings, using equity that was otherwise idle. The lender's rental-income method is what turns a 'no' on personal income into a file that qualifies; the cash-flow result depends on the actual rent, rates and costs, so run your own numbers.