Say I have a $50,000 HELOC and want to use that as a down payment.

And then you can pull a HELOC out for the down payment on your next value add property. 

It has a locked in low payment in an area of swiftly climbing rents.My question is should I use my HELOC to invest in a cash flowing 3 unit property, or start small and work my way up to that someday?

They do plan on buying it after a year but currently cannot come up with a down payment or acquire financing.

A few differences:- Instead of a down payment, refinances require equity.- If you need to use the renal income to qualify, tenants will need to be in place with signed leases, security deposit made, etc.- HML often have a hard time giving the new lender an accurate "payoff statement" and verification of on-time payments to them (latter necessary because HML typically do not appear on credit), which can delay the refinance causing (surprise surprise) the HML to get another month and change of interest out of you at the crazy high interest rate.

No cell phones, no texts, no online portals and rent payments, no electronic signatures, some email, newspaper ads and a lot of door knocking (I can almost feel some of you more seasoned PM vets nodding out there). 

Thus, you just need to save for the 25% down payment.

When using hard money ... say the HML wants monthly interest only payments. 

Mainly I am thinking about if I should risk using 1031 exchange funds from the sale of one of my SFHs for a down payment or if I should wait until I have cash.

My son has been in the Navy for 2.5 years and is contemplating purchasing his first home which will be a 2 unit.He is looking for find out what options he has as far as mortgages that require smaller down payments.