I’m looking to purchase my second property (hopefully a duplex) and believe using a home equity loan is the best way to tap into my equity to use as a down payment since my mortgage rate is 2.5%.

We tried offering seller financing, money toward buying down someones rate, etc.

@Eric Lahoda, for me it would depend on the class of the rental.

It depends how much you can afford to put aside.

This can include opening some walls here and there so the inspector can check if everything is built to code, then you repair or tear down depending on what they find. 

Seller finance deals work when one of the following situations is present1- property can’t be financed with institutional financing usually because property is vacant (commercial property) or in bad condition2- seller will only accept an above market price for the property and by offering seller financing opens the universe of potential buyers to include people who wouldn’t qualify for financing3- seller is able to obtain a “piece of the action” from a buyer rehabbing the property and hence ultimately obtain a higher price.4- the seller has an existing low interest rate mortgage and wants to “wrap” the existing mortgage into a seller financed higher rate mortgage and pocket the differential 5- property is an investment property, seller has a low basis in the property because of depreciation, and wants to spread out the taxes due.Are you thinking of trying to purchase with 100% seller financing, or are you able to /willing to offer a down payment of say 10-20% .  

With many seasoned real estate investors locked into low first mortgage rates and large equity positions, many borrowers and investors have been exploring tapping second position loans like home equity lines of credit for reinvestment capital towards down payment or rehabilitation funds. 

I have such a good rate with my VA (3.25) that I really don't want to refinance it after a year and go with conventional.

This would be more dependent on the  surrounding zoning, future land-use maps by the City, and the City's input. 

A lot depends on whether you want to hold your partnership together, or blow it up?