I would need to consult tax consultant for this however I expect to reduce my effective costs by ~$1,495/month (based on a 32% tax bracket).2.

**As investors, you are closest to the consumer (home buyers/renters), so you tend to absorb costs and reduced profits from unexpected spikes in expenses that wholesalers or contractors pass on to you!

Pros of the second mortgage are reducing the risk on my primary residence. 

To avoid reducing your lifetime exemption, you could gift equity incrementally, but this requires proper legal structuring (e.g., fractional ownership transfers).

However, with careful planning and a proactive approach, you can navigate these hurdles successfully.

I've heard Trump most signed an executive order to eliminate reduced rates for section 8.

With proactive communication, they will demonstrate they are in control, and you can rest easy.Start by going to www.narpm.org to search their directory of managers.

I am worried for two reasons: removing the garage will reduce the value of the homes more than the extra unit will add, and the property value will not increase that much with the extra unit(s).

Assuming you go the HELOC route, another option to reduce your costs assuming you have decent credit is to look at credit card balance transfer promotions.Back in 2003-2004 I had HELOCs on my investment properties and interest rates were increasing.

You're running a business and when you proactively do so, your tenants will know that you're holding up your end of the lease - and if they don't, they don't stay.Hope this helps.