Financing options advice

[E O]

I'm looking for some advice on financing for a rental property I am preparing to make an offer on.

Property details:
3/1 foreclosure listed @ $49,000
My offer = $55,000
Estimated repairs < $3,000
Estimated rent = $800 - $850
Taxes = $175/month

I have a couple of options for financing this deal and hope to get some advice on which would best fit my situation.

Option 1 - refinance and cash out on rental property I currently own out right.
Total loan = $75,000 @ 6.125% for 20 yrs - wonder if I could extend to 30 yrs?
Closing costs ~ $5,000
Take home $69,700.
Monthly payment = $542.75
This would allow me to pocket ~ $10,000 in cash that I could use as down payment on my next deal or for repairs on other properties I own.

Option 2 - Conventional loan
Loan amount = $41,600 @ 6.875 for 30 yrs
Closing costs ~ $3,800
Monthly payment = $318.28
Out of pocket ~ 15,000
This makes the property cash flow but it also takes up my cash and would most likely be forced into a refi on any future deals.

Any help is greatly appreciated.