Personally, If I could pull out a HELOC, I would use it to fix and flip which will typically make sense as you shouldnt be keeping the money out for that long and you can recycle it or pay it back and build off the capital that you got from. the flip.

To pay for this, I used a heloc on my current home.

If you have large debt with a high interest rate, I would consider paying that off before getting started investing in real estate. 

For those interested, a combination of mortgages with no “due on sale” clause, mortgage companies loose due diligence, and title insurers willingness to “turn a blind eye” to practices that wouldn’t pass scrutiny now, resulted in tactics like the “second mortgage crank” which not only allowed investors to purchase properties with no money out of pocket but allowed investors to actually walk away from closing with “cash in their pocket”.

After all, you have no evidence they agreed to pay rent or any of the other terms.

I also believe there is a small co-op in La Jolla but only infrequent sales so not good for estimating a discount.

Is the 11% equity from the appraisal over the sale price?

I noticed that the previous owner let them pay half the security deposit and the other half later, which is a red flag.

I don't see them showing up or paying any of the back rent that's due to become current if they wanted to stay.

Insurance would cover it, I would pay the deductible, and no assets would be lost.If you are in an area like San Diego where people are more likely to sue, a judge is more likely to find you guilty, and the payout is expected to be higher, you may consider an umbrella insurance policy.