Building Wealth with What You Have: How a HELOC and 401(k) Loan Helped Me Buy a Rental Property

About two and a half years ago, I made one of the best financial decisions of my life and one of the scariest. I bought my first rental property. Not with a big savings account or a fat bonus check. I used a Home Equity Line of Credit (HELOC) for the down payment. Later, I used a 401(k) loan to pay off the HELOC.

It wasn’t textbook-perfect, but it worked. And I learned a ton along the way that I wish more people talked about openly. So here’s the story, including what went right, what was risky, and what I would tell anyone considering doing the same thing.

Why I Wanted a Rental Property in the First Place

Like many of you, I started thinking seriously about retirement. I didn’t just want to save money in a big pile and hope it would last. I wanted something better—monthly income that would keep coming in even after I stopped working. Rental income seemed like a smart idea. People always need a place to live, and rent checks could help me enjoy life in retirement.

But there was a problem. I didn’t have a lot of money just sitting around. I couldn’t go out and buy rental properties with cash. That’s when I started looking at what I did have in home equity.

Over time, I had built up value in my home. A HELOC (Home Equity Line of Credit) gave me a way to use that value. It’s like borrowing money from your house to invest in something new like a rental property. I didn’t need to sell my home or take out a big loan. I just used the equity I already had.

That idea changed everything for me. It helped me start building income without needing a fortune up front. It made the idea of retiring one day feel a lot more real and a lot closer.

What’s a HELOC, and How Does It Work?

A HELOC, or Home Equity Line of Credit, lets you borrow money using the value of your home. If your house is worth more than what you still owe on your mortgage, the bank may let you use that extra value. Think of it like a credit card backed by your house. You can take money out when you need it and pay it back over time.

When I did it, the interest rate on my HELOC was around 5%. That seemed like a good deal. My plan was to use that money to buy a rental property. The idea was simple: borrow at a low rate, buy something that brings in rent every month, and let the rent pay for everything.

But here’s the important part: using a HELOC is not risk-free. You’re not just using some savings you’re using your own house as security. If things don’t go as planned, you could be in trouble. What if the tenant stops paying? What if the home needs expensive repairs or stays empty for months?

That money still has to be paid back, no matter what. If you can’t make those payments, your home could be on the line. It’s a serious decision and needs serious thought and planning.

The BRRRR Method and My First Rental

My plan was to follow something called the BRRRR method. It stands for:

Buy a property
Rehab it to make it nicer and more valuable
Rent it out to a good tenant
Refinance to get your money back
Repeat the whole process again

The main idea is smart: you only need one pile of money. You use it again and again to build more rental properties over time.

I started with a two-family home in a strong rental market. It was in a good location, and I felt confident about finding reliable tenants. Everything was going according to plan.

But here’s something important: I haven’t done the “refinance” step yet. I’m waiting. Right now, my focus is on keeping steady cash flow and staying flexible with my money. I don’t want to rush into anything while interest rates and market conditions are still shifting.

Later this year, I’ll look at everything again. If the timing feels right and the numbers make sense, I’ll go ahead with the refinance part. Until then, I’m being careful and patient. This method works, but you have to make smart moves at the right time.

Then Interest Rates and Real Life Happened

Soon after I bought the property, COVID hit and interest rates went up fast. My HELOC rate jumped from 5% to over 9% almost overnight. For many investors, that kind of change would have destroyed their cash flow.

But I was ready for tough times.

I had savings set aside just in case something went wrong. Even with the higher monthly payments, the property still brought in a little extra cash each month. It wasn’t much, but it helped. I also wasn’t carrying too much debt. I had room to breathe.

Then came another surprise. My tenant had to move out because of a personal emergency. The unit stayed empty for four months.

It was tempting to rent it out quickly to the first person who applied. But I didn’t. I waited. I wanted someone dependable; not just someone to fill the space.

That patience worked out. I found a great renter who has stayed long-term and always pays on time.

This experience taught me something important: real estate isn’t always easy or smooth. But if you plan ahead, stay calm, and think long-term, it can still work out in your favor.

Solving the HELOC Problem: Using My 401(k)

With my HELOC rate still around 8–9%, I kept thinking, “There has to be a better way.”

That’s when I heard about using a 401(k) loan.

If you have a 401(k) from your job, some plans let you borrow money from it. You’re not borrowing from a bank, you’re borrowing from yourself. Then you pay it back with interest, but that interest goes back into your own account. So instead of paying a bank 8%, I was paying myself 5%. It felt like a smart move with a guaranteed return.

I used the 401(k) loan to pay off a big part of the HELOC. The monthly payment was easier to manage, and it felt good knowing I was helping myself not just giving money to a bank.

But let me be clear: this move has risks.

If I lost my job, I’d have to pay the full amount back fast. If I couldn’t, I’d owe taxes and a big penalty. Also, while the money is loaned out, it’s not growing in the stock market.

For me, it worked because I had a steady job, a plan to pay it back, and savings for emergencies. But it’s not for everyone think carefully before doing it.

What I Learned

• Plan for bad news. Vacancies, repairs, and interest rate hikes are not “if” — they’re “when.”
• Cash reserves matter. Having six months or more of expenses saved gave me breathing room.
• Tenant quality is everything. Good tenants protect your cash flow and your sanity.
• Creative financing can work. But only if you fully understand the risks and have backup plans.

Final Thoughts

Real estate investing isn’t about doing things perfectly. It’s about making smart choices that work for you. For me, using a HELOC and later a 401(k) loan wasn’t the usual advice but it helped me take that first big step. It turned my dream of owning rental property into a real thing.

It wasn’t easy. I had to plan, prepare, and stay calm when things didn’t go smoothly. But that first step made all the difference.

If you’re thinking about doing something similar, be careful. Make sure you understand the risks, have backup plans, and never stretch your budget too far. But also, don’t be scared to think outside the box.

You don’t need to do it alone. Ayertime can help you plan, organize, and use smart tools to build your future.

Contact Ayertime today for a free consultation. Let’s make your goals happen, one smart step at a time.

About the Author

Peter Civitarese is a real estate investor, business strategist, and founder of Ayertime.ai, a small business consultancy focused on helping companies leverage AI and automation for growth. With a passion for building financial freedom through smart, calculated moves, Peter shares practical insights from his own investing journey to help others take action toward their goals. When he’s not growing his portfolio or advising businesses, you’ll find him spending time with family, hanging outdoors, or trying to keep up with the fast-moving world of AI advancements.