HELOC or Cash out Refi for Down Payment on a Rental?

[Vickie Y.]

Hi guys, trying to decide the best way to go about this. 

Short version: 

Not enough liquid cash for down payment of 20% on Rental #3. Need about 35k. Have 90K equity in Rental #1 and 60k equity in Rental #2. Should I: a) HELOC one of the current rentals, b) take out an equity loan, c) do a cash out refi d) do nothing - continue saving until enough cash on hand.

Long version:

As stated, I have some equity built up in two of my out of state rentals. Both properties are currently on 30yr conventional loans at 4.875% and 5.25%. However, I made the mistake of not having enough liquid cash saved for the third rental. As most of my money is in the market, it seems silly to "sell low" in order to buy the third rental property. I've been looking into the idea of tapping into some of the equity built up, but am stuck on figuring out the best strategy. I would need about 35-40k for a down payment (20%) on a third rental. 

I think my options are: 

1) HELOC - draw down about 40k with the plan of paying this off quickly and aggressively, as the interest rate is adjustable

2) Home equity loan - loan at a fixed rate and term. From what I can see, loan terms can be as long as 10 years, so I would have the flexibility of paying this off slower if need be. 

3) Cash out refi - leaning away from this as I understand this would make my monthly payment go up. 

4) Do nothing - accumulate enough cash to jump back in - would sit out for about 6 - 12 months. 

Any insight would be greatly appreciated!! Thank you BP :) 

[Andrew Postell]

@Vickie Y. for the most part what investors try to do is find a property in disrepair to buy, rehab, then refinance (the BRRR strategy) and that's how we limit our out of pocket expenses. So if you purchased with a Hard Money loan, then refinanced, in theory, that would decrease your out of pocket costs. 

A Fannie/Freddie type of loan only requires 15% down if you need it.  Most people do stick to 80% though.  But that's when you refinance out of your "acquisition" loan.  So if you bought with a hard money loan (or some other type of loan that allows renovation) just make sure you can buy and rehab below that 80% threshold type of thing and you won't need any out of pocket money. I hope that makes sense how I am describing this.

Try doing some research on that strategy to see if that is better suited for your scenario.