Is it legal???

I could use the cash to lit down on a better deal later, pay down some debt, ramp up marketing for some more wholesale deals.

Is that legally allowed in your state?

Don't spend it all and pay down the debt with the cash flow.  

Could screening the applicants as a group cause any legal problems?                                           

I currently have about $10k in savings, paying $450 rent and will come out of college debt free.

Whereas my first property which was an 11 Unit in Illinois has an amazing return with a 16% Cap and 36.2% Cash on Cash and after debt and taxes puts $1137 per month into my pocket. 

Looking at the Fannie Mae website, I found the following requirements:Cash-out refinance transactions must meet the following requirements: The transaction must be used to pay off existing mortgages by obtaining a new first mortgage secured by the same property or be a new mortgage on a property that does not have a mortgage lien against it.Properties listed for sale in the six months preceding the disbursement date of the new mortgage loan are limited to 70% LTV, CLTV, and HCLTV ratios (or less if mandated by the specific product, occupancy, or property type – for example, 65% for manufactured homes).Note: Properties that were listed for sale must have been taken off the market on or before the disbursement date of the new mortgage loan.The property must have been purchased (or acquired) by the borrower at least six months prior to the disbursement date of the new mortgage loan except for the following: There is no waiting period if the lender documents that the borrower acquired the property through an inheritance or was legally awarded the property (divorce, separation, or dissolution of a domestic partnership).

In many cases, you could also drop down to a 25 year fixed, keep your payments ballpark the same (higher P&I payment, but no mortgage insurance, so a wash), but end up debt-free years sooner.

My wife (who is anti-debt oddly enough) prefers to use financing up front to purchase to reduce the cash invested.