Looking for some guidance on a portfolio Refi.

[Zach Fulton]

I had a whole Analysis typed out but my wifi cut out so I've retyped a summed up version. Hope it's still enough info to give advice. 

Basically I have 3 homes. Home 1 has a mortgage 5.25% and cash flows so I don't need to touch it.  Home 2 is owned free and clear and brings in 1850/month. Home 3 I bought in May and the financing fell through 10 days before closing so I bought it on a line of credit. I'm paying about 2k/month in JUST INTEREST. it brings in about $1300 and I live there with 2 roommates and operate my business out of it. Also has room for adding another bedroom, and an above garage apartment making it a 3k/month property after some sweat and it's rented out. 

My goal is to free up that line of credit so I can use it for short-term debt like flips and such. I don't have W2 income so the only option I've found is a DSCR loan. I don't love the idea of having prepayment fees and a mortgage on my free and clear property but if I do a combination of things I would be able to make an above garage apartment at house 3 for 15k-20k that rents out for $1100-$1300. And I'd also be paying off the principal instead of that dump line of credit debt.

House 2 is worth around 270k, probably more according to comps. House 3 is worth 280k(Appraised for 287k in May). I have 286,500k I'd like to pay off on the line of credit. So obviously there's some room on those two properties to pull out cash, but it hurts the cash flow that has allowed me to get into and start my business more steadily. Do I cash out 50% of both? 70% and 40%, 65% and 55%. I've also found an investor who would be willing to lend me 45k for 4.5-5% with 4-5 year terms. It's cheaper money but a higher monthly amount because it's over a short span. So what sacrifice do I need to make?

I put property taxes 6k/year on each(Even though that's way higher then what it actually is, but the county tax estimate says its around that much for each) and for insurance, I just put 1,100/year on each.

If there's more info needed let me know. Would love some input on this!