Cash out re-fi to get second prop but no gain on rental?

[Rob Deweese]

I want to pickup a second property, I am sold on the book, the method, I am learning so much. But I live in Seattle and houses are 600k. My current house is worth 650k, and I owe 404k on the loan. I don't have enough money down to put 20% on a new house, so I need to do a heloc, or cash-out re-fi. I want to pickup another rentable place that is say worth 600k. The money situation worked out like this:

New loan payment on Seattle house goes from 2300 to 2900 a month, 4 bedroom 2 bath houses are renting for 2900-3000 a month around where I live (3 miles from microsoft).

I pickup the new house payment at around $3300 a month, something I can afford and will put some sweat equity into to force appreciate it a bit over time. 

The question I have is, does this seem like a deal worth doing? There is essentially no cash flow to renting out my house, other than the loan paydown, and appreciation.

I purchased the house for 450k, owe 404k now and the appraisal just came in at 650k. So even if there is no positive cash flow I essentially get paid 3k in equity a year assuming that holds to rent the house, while picking up a second home in the process. 

Does this seem like a bad deal, am I crazy? It's hard to come up with 20% down when the crap shacks are 600k, but this is the market I live in.