Smartest Way to Finance Down Payment for Investment Property

[Brittany W.]

Hi BP community,

My husband and I are eager to invest in our first rental property together. Trouble is we don't have the down payment we need! Haha. We have a few pathways to get there and I'm looking for input on what BP members think they'd do or is best.

1) OPM - We can get the down from a family member but then we'd be tied into a partnership agreement, etc. We really want the satisfaction of doing this ourselves so for this reason we prefer not to take OPM.

2) Sell stock - We own stock in my husband's company which is publicly traded. He gets RSUs every year, plus additional grants some of which have already fully vested and other which will vest in the coming years. We prefer not to sell the stock for numerous reasons including that share price is historically low right now and due to length of ownership we don't yet have any vested grants that we can take out at capital gains rates. We're also stuck with pretty intense lock up periods so we have little ability to sell when we see fit. 

3) Re-fi our home (taking it from 2.95 to 3.785) at a 15 year term (down from 30) and cash out for the DP. Pros: Save interest in the long run, get the cash we need. Cons: Very high monthly payments would necessitate we rent out our ADU on our primary property which is undesirable because we'd have to invest a substantial amount to get it up and running, we'd no longer have use of it (we use it a lot for family and friends) and we are stuck in 30 day only market so the return is much lower than with STR. If we decide NOT to invest, we've refinanced our home at a much higher rate and more aggressive pace and we cannot undo it obviously - we've forced our hand on renting out our ADU for the rest of our term (15 years) because we have no other way to flow enough to pay the new higher monthly payments. Our higher monthly payments also reduce our ability to borrow as much as we want for our investment property, leaving us stuck in a lower price tier where income potential is much less.

4) Home Equity Loan ( NOT HELOC) at 5%ish for DP. Pros: Get our DP out. Monthly payments on it are manageable without any changes except cuts in discretional spending. No early repayment fee so we can pay it off in a few years if we want once more stock vests / reaches capital gains territory for selling. Preserves a higher borrowing capacity for our investment because monthly payments are lower than refi. Cons: Overall this is technically the most expensive option if you look at long-term cost, despite being cheaper than the refi on the monthly. 

Our goal with our investment is to start building a portfolio of a specific class of residential property. It is not to immediately flow high and make a ton of cash. It's a long term game, but we would hope at the very least to cover our costs for the first few years before we begin to flow more. If we had a DP, we could start flowing modestly immediately!

WWYD BP Geniuses?!