Rental Financing Feedback/Help

[Paul Novak]

I am looking for some advice.  Before I ask my question I wanted to provide background to help with any feedback you could provide.  My wife and I currently have 5 doors, 3 properties so we aren't looking to finance our first rental.  We live in Wisconsin so cost of living is relatively low and the average price of homes we are looking to purchase are between $150K and $225K.  From the properties listed above we cash flow $2750 per month which we are happy with.  Our combined income from our W2 jobs is around $215K per year.  We maintain zero debt other than our mortgages on our house and the mortgages on our rental properties and our overall expenses are relatively low.

With us being in prime income earning years where I believe our income will still make steady increases over the next few years I put more money down on our last property taking a short term hit for long term gains.  To do this I had the money for the down payment on our last property and I put an additional $50K down on the property by taking a loan out against my 401K.  My thought was it increased our monthly cash flow by about $400 per month for the next 30 years, I am paying the interest back to myself vs. the bank, and I am able to pay the 5 year loan back in about 8 months.  

My ultimate goal is to grow our rental business to the point that we are generating $11K per month with fully paid off properties.  Today I track our monthly cash flow along with our maximum monthly cash flow if the properties were paid off in full.  In my mind when our maximum monthly cash flow hits $11K I switch from growth mode to pay off mode.  Hopefully over this time I can recast some of my mortgages to increase cash flow before I get the mortgages fully paid off.

Now for my question. I want to purchase another rental property this coming year. I owe about $20K left on my 401k loan but will have that paid back no later than March. I am wondering what this groups recommendations are for financing. I want to keep my monthly cash flow on the property at $500 per month or more. Even if that means I have to put extra down I am fine with that. I have a HELOC I haven't touched with $90K available to me. I have about $55K availably with my Roth IRA contributions and taxable brokerage. Once I pay my 401K loan back I have $100K available to me in 401K loans we could borrow from my wife and my 401K's or we could just save. With interest rates as high as they are to have cash flow of $500 per month I am estimating I would need to put down about $100K on a nicer property. Am I wrong in thinking that I would rather pay interest back to me using my 401K for financing then borrowing from the bank? The loans take about $500 per paycheck off our pay but to be honest we make enough that we can easily afford that hit and if we didn't have the 401K loans out we would simply be depositing that much into our business every week anyways. If we worked to save the cash it would just delay our investing by maybe a year. I also understand that we could put less down on a property and buy more properties which would increase appreciation, increase debt paydown, and increase tax breaks. With my wife and I having two small children and demanding jobs I am okay with less properties and more cash flow from those properties for our current situation.

Anyone with experience with this that is willing to provide feedback would be much appreciated.