However, you have to be careful of the senior lien holder asking for unpaid principle+interest+penalty fees; sometimes this can be far higher than the face value of the outstanding principal balance.

If you buy right, you can still cash flow even after paying two loans for the down payment and principal of the house.  

@Amber TurnerThen you have the choice of going Freddie, or Fannie, whichever is more advantageous, if needed.Reminder that retirement accounts can be used for reserves, at 60% of value.Below is particular to your situation as you described it...Fannie:4% of unpaid principal balance for non-subject property investment properties.6 months of PITI for subject property. 

If you are already approved, then just take out the 50K and put 5K back on the principal leaving you with the 45K that you needed.

I currently rent my place in California (so I don't own a principal/primary residence currently) and can't move as I have kids in school here, etc.

I like to make mine on an amortization schedule like a mortgage so that i am paying it down the same way, PITI (principal interest tax and Insurance).

Yes you can finance rehab into a 203K, but only if the home will be your principal residence.

Even then you run the risk of the appearance of a conflict, and the resulting potential lawsuit.The conflict arises because of the different legal roles of an agent and a principal.  

I love @Aaron Mazzrillo and he is a true transaction engineer in the Republic of California.California for terms deals such as lease options and installment sales purchases requires strong knowledge of agency law.The California BRE, bureau of real estate, requires a license to talk to sellers and buyers about buying and selling and leasing residential real estate, unless you are a principal buyer or seller and not assigning.I advise most California investors to do Delayed Sales and Purchase agreements w rights to occupy, losing their earnest money if financing is not successful.

Any cash flow would honestly go toward the HELOC principal right now.You can see the monthly cash flow as it calculates below.