Second Rental Property Options?

[Dereck Palermo]

The property that I currently have for rent was my first home that I purchased with a USDA Rural development loan. I have a positive cash flow of $400 per month for renting it out. The home is worth about $190,00-$195,000 and I have $140,000 left to pay on the loan. 

I'm currently looking at a duplex that is selling for $130,000 and both units are being rented out for $725. I'm thinking maybe improved it some and rent it out for $800-$850 per month after the current tenants move out.

Should I do a Cash out refinance to purchase my second rental property or is there any other good suggestions out there?