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 !