Modular financing methods to build cashflow in expensive markets

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Many of us who live in expensive markets are constantly trying to allocate capital in RE, but struggle to find cash flowing deals.

You might even have the income to pay off a good chunk of a mortgage, but you won't want to refi with raising interest rates, so does it make sense to purchase new investment properties with a "portfolio" of methods?

Scenario A (typical) - $500k duplex
-$125k down
-$375k mortgage at 4.6%

Scenario B (modular financing) - $500k duplex
-$125k down
-$260k mortgage at 4.6%
-$75k HELOC on primary residence
-$40k loan against 401(k) (technically this would be $165k down, but you get the point)

In scenario A, paying off the mortgage quickly makes zero improvement on cashflow until you pay it off completely, or refinance, and there's no point in that if your rate is locked in lower than current(or future) market rates.

Scenario B could involve higher interest rates on the HELOC and the 401k loan, but you have multiple, simple, easy options for increasing your cashflow, and then you don't end up playing as much in the overpriced, volatile stock market. You could take your time paying off the smaller loans, and if the market swings and foreclosures pop up, you still probably have a little side capital instead of having everything tied up by trying to pay off one monster loan. Is it possible to obtain a variable-rate loan on the HELOC, so it "hopefully" is cheaper, and if interest rates rise, you make it your priority to pay that off ASAP? It's a little bit of a gamble, but if it's a relatively small volume then you have more possibilities.

Is there anything stupid about this strategy? What am I missing? This assumes solid middle-class income and a decent amount of equity in a current primary residence. Will many mortgage underwriters have problems with a complex package like this?

@Colin Simon   I happen to live in a great cash flow market. I simply do not understand why anyone wants to invest in markets where cash flow is hard to achieve. There are so many good deals out there.  

I understand where you are trying to go, but what scares me in your scenario is that if something goes wrong in your life (illness, job loss, divorce, etc) you now have your personal house at risk. HELOC's become really scary in market crashes. After watching friends lose millions and in one case several hundred million in the 2008 crash, I am convinced that building cash flow with little risk is that way to go, and putting your personal house on the chopping block is too risky for my taste. Instead I would look to markets where you don't have to deal with all that risk.

Good luck

Josh