Cash out refi and rent or sell current house?

[Tony Iaconelli]

So I’m unsure of what I should do moving forward and am looking for some advice. I apologize in advance for the long post. 

Currently in the process of purchasing a small multi family (2-4) units using a VA loan. I own a home currently that my wife and I purchased 2 years ago for $172,000 using a VA loan. Due to the VAs loan entitlement limits I can purchase up to $312,000 without a down payment.

My home has gone up in value quite a bit in the last 2 years and I believe (will obviously get an appraisal to know for sure) it is worth $205,000. The VA allows me to do 100% cash out refi. I can rent my home for roughly $1700 per month. Right now my home meets the 1% rule, but after refinancing it my payments would obviously increase as well as my current interest rate.

Option #1

Purchase a small multi to house hack and rent remaining units and sell my current house and save the profits. Live in for a year per the VA's requirements and repeat.

Option #2 

Purchase a small multi to house hack and rent remaining units and do a cash out refi on my current home and save the money for future down payments and rent my home even though it will be below the 1% rule. Repeat the process after one year. 

This will be my first deal so I am nervous. Option two sounds great because I can potentially pull 20-40k equity out of my home depending on what it gets appraised at but then the numbers won’t make sense when rent it. Any advice would be much appreciated!