Cash Out Refinance Scenario

[Jack Rozema]

I want to see if anyone has an opinion on what I should do. Quick background:

Bought our house May 2020 for $185k, 6 bed 2 bath, near Kansas State. Put about $12-15k into it. Remodeled kitchen, both bathrooms, painted the entire interior, remodeled basement bedroom that's doing well as an AirBnb. Did all the cosmetic work myself to keep costs low. Goal is basically a "live-in flip" and to either cash out refi or HELOC to get the snowball going on other investment properties.

Current conventional mortgage is 3.75%, total payment of $1,212, current balance is just over $178k. House next door just sold for $260k. I think our house is very similar post reno, and ours has a detached garage but the neighbor does not. Really the only thing ours needs is a water heater which I’m replacing soon for ~$1,500. So I’m thinking it should appraise for at least $250-255k.

Main issue is I'm nervous about the qualification for the new loan. My DTI was almost too high to close initially (student loans and car payments) and now I have ~$10k left on a credit card from the materials (no interest until Sep 2021). I do make ~$90k in my W2, about 10% more than when I applied last year for the loan.

Should I just try to apply for a refinance with a few lenders as is? Should I ask a family friend to loan me $10k to pay off the credit card first and I pay them back with interest in a few months with the cash out proceeds if it saves me interest in the long run? Will a lender flag that deposit during the underwriting process and be concerned? Should I HELOC instead? Any ideas are appreciated.