The payment on the HELOC reduces the cash on cash returns but the way I look at it is some money is better than no money. 

I would have to sell one of my two properties to reduce my living expenses and that is not what I wanted to do today.

The home should be listed for fair market value and will more than likely sell fair market value, all things being equal.If you can't convince the bank to reduce their recovery by reducing their net proceeds so you can make a profit, i'd move on to the next deal.

Lenders/Mortgagors what do you do with your leads that have 50k in cash, but are self-employed or have medical bills?

I forgot the mention the tenant exhibits extreme mood swings and admits to drinking while on medication. 

No good reason to reduce your cash position and pay higher rates at this point.

What expenses can you reduce usually?

Saying 'no' to pets will drastically reduce your candidate pool, so you might shop for a pet-friendly house (hard floors, securely fenced yard).Even if you're cool with pets, you should meet the specific pets and have a good long talk with the candidate on that animal's temperament and quirks prior to agreeing to lease to them.

I was born in 1988 in Los Angeles, CA to immigrant parents from the Philippines.When my mom was giving birth to me there were complications which caused the doctors to diagnose me with a medical condition called "Cerebral Palsy".

You could do a hard money loan if you are getting a deep discount on the property and that will reduce your total out of pocket.