Should I make downpayment for rental investment with cash or LOC

[Akhil Kumar]

Hello Gurus,

I have cash in the bank to make the downpayment on my next REI (buy and hold and rent). I don't have a HELOC set up yet, though I have enough equity in the home to get one.

My question is: which option makes most financial sense?

1. use cash to make the 20% downpayment. Take 80% loan

2. open HELOC, use it to make 20% downpayment. Take 80% loan

The advantage of 2. is I preserve my cash and pay down the HELOC balance over the year vs. paying it all upfront. The downside I can see is opening a HELOC will probably lower my credit score and thus the 80% loan will likely cost more. Just my hypothesis.

I have about 4 months to pull the trigger on the REI.

Wanted to see what you all thought about the two options.

Thanks in advance !

[Thomas S.]

I would absolutely start by setting up a HELOC. Your home equity is cash basically lying dead that is costing you more money that what it would cost to pay to borrow it.

I would pull out every dime I could and invest in as many cash flow multi unit properties as I could get. The absolute best investment property you can have is one that will cash flow with 100% financing.Having equity in a rental is costing you more money that it costs to borrow. Equity kills cash flow.