remodel investment property with primary home's HELOC or my money

[Suya Zhang]

Hi everyone, I'm in San Francisco Bay Area. I have $300k heloc from primary home. I want to better utilize this money. I have two ideas:

1. improve investment property with $150k, then the cash flow will be increased by $1500 per month. yearly ROI is 10%.

2. use the rest of the heloc to purchase another investment property. 

For idea 1, My concerns are: HELOC has variable interest rate range from 4.5% ARP to 8.6% APR(but the banker told me that she never see the APR went up to above 6% in last 15 years). So the yearly interest cost for a $150k heloc is range from $6750(4.5%APR) - $9000(6%APR). That means if I use HELOC to invest a 10% ROI project, the actual return excluding the cost is only 4-5.5%. But the money is free, not from my savings.

I'm not sure if using heloc for investment property improvement is a tax deductible event. I searched online. It says that it can be deduct from income tax but has some limitations. For example, if your entire loan amount is exceeded $750k, you can't get the deduction. (Not sure if it's correct). If it's a tax deductible event, the actual ROI can be higher.

The alternative is: I can use my own savings $150k to remodel the investment property - To rent it, I have to remodel it since it hasn't been remodeled for a few years. My questions is: should I use my own savings $150k or use heloc? If using heloc for this project, I'll still invest my savings in other areas to get a 10%-15% annual return, for example, buy VOO ETF. That means I have 2 funds to use, $150k Heloc to invest in real estate to generate cash flow and appreciation, another $150k my savings to invest more liquid asset to generate a capital growth return with no cash flow. 

For idea 2, the cost is the same as idea 1. The average return(cash flow + average appreciation) of a Bay Area house is 15-20% with the leverage(assume house price appreciation on average is 5% per year, downpayment is 25%). Of course, cash flow return is negative if I buy a house in Bay Area with heloc as downpayment. If I don't use Heloc to buy investment property, I don't have my own money(savings) to buy it. 

Appreciated any suggestions!