Use equity (and how) vs payoff to increase cash flow

[Douglas Pollock]

If I’m looking to buy and hold SFR for cash flow, how do you recommend proceeding? Purchased SFR foreclosure in 2009 with $194K VA loan having 15 year fixed at 4.5 % APR. Current balance is $75K with estimated home value of $250K. We’re only 5 years away from payoff, and an $1,165 projected cash flow (not counting rent increases). Current rent is $1,800 per month, with negative $200 cash flow (if you don’t count equity as income). The thought of one property cash flowing over $1,165 is appealing, but the risk of lawsuit on a paid property makes me want to get a HELOC or refi and cash out. My credit score is usually at or near 850. Even if I don’t cash out, I’d like to buy property #2. Tapping equity in property number one would make financing number #2 a lot easier. Am I better off waiting a year and using my saved cash for a down payment, or tapping equity? After all, tapping the equity would delay the cash flow results I’m looking at seeing in 5 years. If I tap equity, what’s the best way (refi, HELOC, other) if my goal is to buy a second property?