Cap Rates in the area.

What was the specific rate he was quoting you?  

They got fundamentally sound real estate, with matching debt (10+ yr fixed rate) and budgets with the intent to hold nearly forever. 

And keep in mind that the rate on the 2nd lien will likely be 10-12% so depending on the cash flow it might not actually yield that much cash to you at closingMore importantly, it's just more debt so ultimately it sounds like you need an income-producing event to actually improve your situation and avoid some of the consequences that you mentioned

Most people make the mistake on putting to much moey down or use "All cash" and then need to pull it out later at a higher rate.

go to Anthonys RE school take you a few months and your in business.

As for cash or not I think it depends on rates, your level of risk tolerance, and what the opportunity costs is for that money. 

Rental Demand and Rates: What is the current rental demand for ADUs in this neighborhood?

780 or higher should get you the best rates/terms available, no difference than 820 score.

 I would refi quickly and do a rate and term or pull a bit of cash out.