Out of curiosity if you've had success with apartments that lead to you having this extra $100k....why bother changing when you have a working recipe at this point? 

To answer your question, yes I would finance 80% and pull all the extra equity out for another down payment.

Must include:- obtaining all licenses and permits- tear down of existing structure(s)- complete build including finishes

Some banks do this as a way to build a relationship with a borrower and to bring in extra money.

Get a permit and use licensed trades!

And with a good tenant buyer that is willing to pay in a little extra per month toward the down payment, you can get them to work... and ultimately collect your profit on the backend, or on the second and third lease option tenants if that plays out.The clear advantage of going this way is... if you dont find a "GOOD" lease option buyer, you are not obligated to the sellers... just let the bank take it like they were going to anyway.Pre-foreclosure lists are easy to find, and because getting a short sale completed is a numbers game there are often many sellers in that niche that could not get the short sale done, and are going to walk... you can cut your teeth on those until you get your system fine tuned.On a side note... the other way to go is to get a mailing list of absentee owners from your county tax rolls, or realquest.com.

We have no other debt.My thought process is to pay off the rental property with the smallest mortgage as fast as possible with our extra cash flow, then use that rental income to pay off the next smallest mortgage of another rental prop, and finally when that property is paid off we want to use all the rental income to pay off our personal residence quicker so we can retire without this giant mortgage payment.

I'll have to calculate what the profit will be after the extra holding costs and see if it's still a good deal.

That's just about as good as you are going to do in Washington.2 suggestions for the extra lot to make the deal better.Split it off and build another rental on it.orSplit it off, sell it.

zoning, setbacks, non-permitted structure, access/easement requirements...