Cash refi to buy income properties

[Ivy Liu]

I'm a part-time investor and looking for advice on how to have my real estate investments cover their own mortgage/expenses.  I'm working with two investment properties.  

Property #1: has had significant equity, and can do a cash out refi and take out $200K.  I'm having a relative living in this property.  So, it cannot be sold.  However, since my relative lives there and I pay for everything, it can be re-financed with a primary resident loan.  The monthly expenses (mortgage/taxes/insurance) is $5,000/month currently.  A regular refi with the current low rate can lower the mortgage by $900/month. 

Property #2: The second one can be sold and in a 1031 exchange can realize $400K profit.  Currently, it is being rented.  It is cash positive and brings in net $1,300/month. 

The problem: since my relative lives in Property #1 and I'm not charging rent, I'm paying the expenses out-of-pocket, which is too much for me.  I'm looking for ways to reinvest the equity in Property #1 and Property #2 to cover the mortgage/expenses of $5,000/month for Property #1.  Property #2's rent currently offset $1,300 of the expenses for Property #1. 

Potential Solution #1: do a regular re-fi of Property #1 and lower the monthly mortgage by $900.  Sell Property #2 in a 1031 exchange, and identify investment opportunities that can generate $4,1000/month with $400K investment.  

Potential Solution #2: do a cash out refi on Property #1 and bring out $200K.  Given the low interest rate, the monthly expense would be the same: $5,000/month.  Sell Property #2 in a 1031 exchange.  Look for investment properties that generate $5000/month cash with $600k of investment. 

Potential Solution #3: Keep both properties.  Do a cash out refi of Property #1 and use the $200K to look for investment opportunities that generate $2,800/month.  

How possible/where can I find investment opportunities that work with each solution?  I'm located in Nor. Cal and I cannot find cash positive properties here to fit any of these potential solutions.  Looking for other suggestions.  Thank you!