Most efficient source to pull funds from for a down payment?

[Mike Levene]

I currently own 3 units and looking to add to my portfolio in late spring/early summer of 2025. I'll be in the market for a duplex/triplex in the $400k range that I will owner occupy and use a 5% down loan. I have some of the required funds in a HYSA, but will most likely need to draw from another account and I'm curious which method is the most efficient in terms of taxes/capital gains, penalties, loan repayments, etc.

Based on my previous transactions in the market, I estimate ~$45k cash to close: $20k for the down payment, $15k for closing costs and prepaids, and $10k of starting reserves. I have gotten a seller's credit for my 3 existing units but to be conservative, I will assume I am paying full closing costs here.

At the moment, I have ~$25k in a HYSA and expect to save another $10k from my W-2 before I start putting offers in. That means I have roughly enough for cash to close, but no reserves left over. FYI I do have plenty of reserves for my other units already, but would like to keep each property separate.

My question is, where should I draw funds from to pay the least amount in penalties, taxes, loan interest, etc. from the following sources I have available:

- 20 year 401k loan for a property
- Sell a piece of my stock portfolio at 15% capital gains tax
- Take a HELOC against an existing property
- Private money loan from a trusted partner I have worked with before

Alternatively, I could pool the reserves for all my properties to ensure I can cover anything immediate and know that I could always sell off a piece of my stock portfolio if needed and have the funds within 3 business days or set up a HELOC and only draw from it if needed.

Appreciate any thoughts or what you have done in the past.

[Tom Thomson]

I love the HELOC option! It's sometimes a little tougher to get one on an investment property vs. a primary residence but If you can get it I would strongly recommend looking into it.

[Mike Levene]

Quote from @Tom Thomson:

I love the HELOC option! It's sometimes a little tougher to get one on an investment property vs. a primary residence but If you can get it I would strongly recommend looking into it.

So far this is looking like a great option for my situation but I've never done one before. Just curious, what is a typical LTV I can draw up to with a HELOC on primary and investment property? Around 80%? I'm sure some local banks will do higher especially with a strong relationship but don't think I will fall into that category.

[Tom Thomson]

80% on primary and 75% on investment property I believe.

[Dominic Mazzarella]

It’s definitely smart to evaluate the tax and cost implications of your funding options. Here are some thoughts on your choices:

• 401k Loan: This can be a good option since you're borrowing from yourself, but it comes with repayment risk, especially if you leave your job. The opportunity cost of losing potential market gains in your retirement fund should also be considered. I don't think enough people consider this aspect.
• Selling Stock: Selling part of your portfolio could work, but the 15% capital gains tax might make this an expensive choice unless the stock has underperformed or you’re diversifying away from riskier investments.
• HELOC: Using a HELOC on an existing property is a flexible and relatively low-cost option. I believe interest is tax-deductible if used for property improvements or purchases, and it gives you quick access to funds while keeping your stock portfolio intact.
• Private Money Loan: If you have a trusted partner and terms that work well for both parties, this could be an efficient solution without tapping into your other assets. Just ensure the agreement is clear and formalized.

Pooling reserves across properties might make sense if you're confident in your cash flow and other contingencies. A hybrid approach could also work—perhaps using a HELOC for reserves while saving the stock portfolio and 401k loan as backup options for future opportunities.