New investor with a free and clear property

[Greg Schuricht]

I own a condo free and clear (worth about ~80K). Long story short, it was my bachelor pad before I got married, held onto it through my marriage and rented to family and friends for the past 7 years. It has been paid off for roughly 3 years. I have recently been bitten by the REI bug and want to invest in more property. I'm considering doing a cash out refi on the condo to finance new investments. Couple things to consider:

1. I am in the exploratory stages of contributing it an LLC for asset protection. Talked to a lender today who said I would need to refinance it before contributing it to the LLC if I wanted to leverage that equity. I asked about the "due on sale" provision associated with an LLC contribution, and he said the bank wouldn't know if I made the LLC contribution. I have time scheduled with my CPA to discuss, but am curious if this is common practice. Would I be putting myself at risk by doing a cash out refi and subsequently contributing the property to an LLC?

2. I'm having a hard time justifying taking out a loan on a property we worked hard to pay off. My wife and I are well-capitalized otherwise, but does not share my new-found passion for REI. It would not be a hardship to come up with cash for a down payment on a new property, but it might be a hard sell for my lovely wife, which is why I lean toward a the refi. I feel like this is the best avenue to finance new acquisitions and build my business.

Any advice?