The new purchase needs to cash flow plus the amount of principal and interest in the HELOC.

Loan Principal: $2,506,000Basic metrics: EGI: $315,235Expenses: $108,000NOI: $207,235Listed at around a 5 cap. 

Purchase Price: $625,000Interest Rate: 5.5%Loan Length: 60 MonthsDownpayment: $40,000Monthly Payment: $3,321.57 (Based on 30 year Mortgage, $585,000 Loan Amount)Total Paid in 60 Months: $199,294.20Total Interest Paid: $25,400.77Total Principal Paid: $173,894Total Paid: $199,294.77Balloon Payment Due After 60 Months: $411,106Buyers will refinance on or before October 2027Seller has a current mortgage on the property. 

The same $100,000 NOI capped at 10% = a value of $1,000,000.Bottom line: Along with land and improvements, you are principally buying the capital it generates in the form of NOI, much like the yield a bond produces.

There must be a principal place of business (office) in the State of Arizona."

It's a bonus to cash flow, tax benefits, and principal pay down.

According to comps in the area, I've determined that $300K is a conservative ARV ... for funding my lender has suggested using my HELOC (principal and interest payment so high) for the down payment and then a DSCR loan for the rest. 

Length of repayment period of Principal & Interest. 4.

Look at your return on equity.If the deal cash flows $850 per month and you have $150k worth of equity, then your real return is 6.8% (not including appreciation, principal pay down, and tax benefits)I don't know anything about the sub-market but if you believe that Knoxville, TN is set up for growth over the next 5-10+ years, then it probably makes sense to hang onto this property.

Depending on the risk of the deal, they should have 8-18 months or principal and interest in reserves as well as a renovation reserve of at least 10% above the anticipated project cost.