I see everyone talking about leaning towards a HELOC but I will tread carefully and fully explore my options before getting this (I see "cash out refinance" and home equity loan are also options, leaning towards HELOC but will need to understand the advantages and disadvantages).

Best alternative I know of is the old 80/10/10 is back. 80% 1st mortgage, 10% 2nd/heloc, and 10% down = NO mortgage insurance.It's available in limited states for well qualified borrowers and is a great reward for those who kept their head above water after the recession.

From there I planned on using that property to take out a HELOC (as the bank would see that I own the property not knowing I owe money on it to family) and use that as a down payment on a second property and to use some money for fixing that up as well.

You might be eligible for a HELOC. 

Have you asked about a HELOC? 

are you able to get a HELOC on the property instead of going through a cash out refi?

I recently applied for a HELOC, which I was advised by my mortgage lender would be used against me in my debt-income ratio.

Helocs are very inexpensive to close on.  

We did just prequal with our lender the other day without a problem (NO HELOC or no proof of renters needed) and are looking to spend sub $450K on the new house. 

It may not feel high because you're making good money, but most conventional lenders will not go above that LTV for cash-out refi's or HELOC's on investment properties.