They've increased the price several times in the last few years. 

Owner occupied loans have allowed us to purchase properties in markets with heavy appreciation, and potential for huge rent increases.

- The increasing cost of damage repair and potential mold growth

This demographic is projected to keep increasing over time, so I would do whatever you can to hold onto this property (ie cash flow well).Furnishing 700 sqft with PB or West Elm (you and my wife would get along great, Bonnie) won't be price-prohibitive and well worth the cost.

This will increase the return above what can be obtained on a passive investment.The flipside of having the power to control everything is that it can be alot of work (and a full-time job if a person is putting in sweat equity).

Build your portfolio as your knowledge and wealth increase. 

I can mark it up with a fee or by increasing the rate (or both, but I never do).

However, if you're a W2 high income earner or business owner, I can't imagine it makes any sense to flip houses, mail mass post cards, wholesale, or build lead gen websites with the value of your time being better spent other places (such as learning about real estate and increasing your income through proven means), such as at your 9-5pm or growing your business, and your real estate is a long term process and you don't need "home run" deals to qualify or make it work.

Ideally a HELOC is used for less then a  year project where you can refi or sell to pay back the HELOC. 5 years is a long time, things can happen and if you reduce the cashflow on both properties you'll be increasing the risk and having thinner margins.

Typically its done for open space or use for community property (ie. fire station location or other county use) and typicaly would assist in increasing tax base.