Strategy for cashing out investment property with conventional mortgage

[John Teabout]

My wife bought a condo for 178K with a conventional mortgage (10% down, 4.25% APR) in 2019 before we were married. Then I bought a bigger condo for our primary residence in 2022 for 275k with a conventional mortgage (5% down,1.5% APR). We rented my wife's condo and are currently getting $2,350 per month. My wife's condo is now worth 300k+ and we are looking for a strategy to pull cash out for a new deal that involves potentially putting her condo in an LLC.

Should we create an LLC and do a cash-out DSCR loan? We are concerned that the new interest rate will create negative cashflow on the rental. Does this also mean "selling" the property to the LLC and paying capital gains tax?

Should we leave her conventional loan and take out a HELOC? We have checked with a few lenders and because it's not our primary residence anymore lenders won't offer a HELOC.

Any suggestions?