I have about 20k in cash and over 100k in equity in the home..

If you are adding value, the IRR is higher if you cash out in the early years because you have that cash inflow in hand to reinvest (rather than sitting in equity). 

However, another option I'm open to doing is buying a house to live in, rehab at the same time, and use the built up/built in equity as a down payment on a rental property.

The appreciation in my complex has averaged +$14,000 per year in equity since 2012. 

So, you would be essentially buying out your relatives with a loan of $500K, and your portion would be the remaining $100k in equity.

@Eileen Murray - I'm pretty sure this is what @Thomas S. is referring to:  w/o a mortgage I have @$160k in equity in the house. 

Roughly 100K in equity.

If you are cashflowing $200/month, as well as building $1,500 in equity over the first year, you will have roughly $4,000 in value from your investment after one year.

In 2010 if you bought a property in CA or DC which are my markets, I could do a Cash-out at year one and have another $40K in equity 12 months later following that cash-out, The risk was mitigated by the hot markets.

We have 80K in equity in our home, and the bank can loan up to 85%.