Using HELOC for investment property down payment?

[David B.]

My wife and I live in our triplex in Los Angeles that recently appraised for $900k (would sell for 1.2-1.3M, but low appraisals for multifamily are typical in our gentrifying area).  We have a loan balance of $430K, 30 years at 4.15%, no other debt.

We have about $150K sitting in a bank account.  At some point we'd like to use this money as a down payment on another rental property, but given where the market's at we may hold off until the next cycle.   This raises the question of what to do with the money until then.  I have a low risk tolerance and am not comfortable putting that money into stocks or bonds for the foreseeable future.

I am wondering whether it would be possible to pay down $150K of principal, then tap our equity through a HELOC or some other instrument when the time comes to buy another property. At some point in the future I'd like to buy a 2-4 unit property in the $5-700K range.

I'd very much appreciate any advice!

[Demetri T.]

My initial thought is just a matter of liquidity. It's really a side note. If you do pay down, I would probably get the HELOC set up before (or simultaneously) you pay down the mortgage. That way if a deal pops up or you need the money you are ready to go right away.