We love our home too much....

[Chris Kennedy]

After countless hours/days/weeks......I've struggled with finding the approach that will best suit our situation/lifestyle. We have lived in our current home for the last 3 years (25 year ammor.) and we are nearly debt free besides the mortgage through aggressive budgeting and saving. The next step for us is to build an Emergency fund and then start saving up for a 5% down payment on our first Rental property (preferably a duplex). We only need 5% because we will be "owner occupying" the home. We live in Canada by the way, but I think the same 1 year rule applies. 

We originally planned to rent out our beloved house and move into one part of a newly purchased duplex, rent out the other half. I've analysed this to death by the way. We can cash flow anywhere between $400-$800 per month in a duplex, but will only cash flow $100 max from our single-family home (2 bed 2 bath). 

We don't have kids (just two kittens), and we are 30 years old. So we are flexible with living situations ("minimum comfort ability for maximum profitability"- Thanks Craig C.) 

I would like to present our latest revised plan, and I'm looking for advice or input as to whether this is a good idea or not, so here it goes:

We rent out our current home, live in one side of a duplex and rent out the other side for ONE YEAR (CRA requirement). After that first year is up, we move back to our original home, and rent out BOTH sides of the duplex to achieve maximum cash-flow. We save up for a 20% down payment (with help from using our rental cash flow and our continuing frugal lifestyle) and purchase another duplex or possibly triplex. The benefit I am seeing here is that we get into our first rental property finance with maximum Cash on Cash return (5% down payment), we get to move back in to the home/neighborhood we love so very much, we achieve better cash flow than if we were to stay living in the duplex for more than year while renting our house, and we are able to use OPM to fund our next rental property.

So what do you think? Am I over-analyzing this too much? 

[Jim K.]

@Chris Kennedy

"Our beloved house" is likely to eat your earning potential right up and spit it out. I'm not Canadian and I won't pretend I know the laws in the land of beans and franks. I'll tell you that your plan is economically possible, certainly, but the psychology of it is going to be devastatingly difficult to handle.

1. The loan. It would be very difficult to get a similar loan here in the USA already owning a primary residence.

2. You plan on moving out of your beloved house to one side of the duplex and although you didn't say this in your post, you'll have a tenant in your beloved house. A tenant who may very casually break or damage parts of your beloved house and you suddenly discover you hold far more near and dear than you think. This has a high probability of leading to stress in your marriage.

3. Examine the mechanics of living in one side of the duplex. It's likely smaller than your beloved house. Most of your stuff will be in boxes. You and your wife will largely resign yourself to the fact that you live surrounded by these boxes that you are only going to move back to the primary residence after a year. The boxes will remain unpacked, and you will rummage through them when you need something. Or, you may lock up the boxes in a part of the basement of your beloved house. Or in a storage locker. All these alternatives will add more stress to your life.

4. There's a small chance you're really thinking of fudging the requirements of living in the duplex and staying put in your beloved house. This would be quite likely a very bad legal decision to make.

5. Let's say you make it through the year of tribulation in the duplex, let's say the tenant's life doesn't go haywire in a year and you don't get screwed, let's say the move there and the move back both go off well enough, let's say your beloved house remains unsullied and undefiled by a year of tenancy. This will be your first baby-stepping year of landlording experience, of course, but don't worry, all will go well and you shall overcome.

6, At the end of it, you will be back in your beloved house, surrounded by your beloved things, with a duplex now generating some income. You will successfully fill the other side with a good tenant. The scars and trauma of being separated from your beloved house for a year will begin to fade. Except for one nagging thing. Now you will understand just how much your beloved house is really a millstone around your neck, an unproductive money pit sabotaging your ability to convert income and cashflow to wealth. Your wife may or may not understand this. You will have to deal with it going forward. This will not be easy.