My 2 cents is prices are crazy inflated right now, but believe it or not I think it will continue because of continued demand pressure for the area from people fleeing higher cost of living areas and moving there, with access to 87/17.

But this comes with pockets of C/D neighborhoods, and higher potential for headaches;  in addition, appreciation in these zips has probably maxed out for a while.

They could also fix it on their own (as some of Scott's buyers do) , increase the value and sell it at higher price than bought, pocketing the difference. 

I’ve been bouncing back and forth between markets like Chattanooga with higher appreciation, and markets like Birmingham with more cash flow.

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.

You would end up saving the higher interest rate on the HELOC as well as closing costs.

Either way, I ran a proforma and this looks like a good deal (as long as you don't have too much in the way of rehab/maintenance costs).Also, IMO, you can probably raise rents even higher.

This may be because (1) until recently interest rates were trending lower so if the lender is getting a higher rate on subject note than he can obtain on new note there’s no monetary incentive to call the note (2) in the past technology did not exist to identify the property transfers (ten years ago county recording docs were not online) and (3) the lenders rather collect payments than own property.  

You can refinance sooner and at a higher LTV.

Banks who offer construction financing tend to be 75-80% LTC and alternative/hard money lenders will sometimes offer higher LTC leverage than that.