Advice on Rental Properties

[Gary Turner]

Hi all,

Just looking for some advice on this subject. My wife and I currently own the following properties in Ottawa, Ontario:

1 - Primary residence - ~650k value, 475k outstanding mortgage
2 - Rental property #1 - ~500k value, 231k outstanding mortgate, HELOC of ~70k available.
3 - Rental property #2 - ~220k value, 145k outstanding mortgage

In the next couple years, we're possibly looking into purchasing a new primary residence and we'd like to convert our current primary residence to a rental property if possible. It would have a very small monthly positive cash flow, but it's in an area that's very up and coming. The other two rental properties essentially break even every month right now.

A couple questions I had:

1. Would it be wise to use the HELOC on rental property #1 as a 20% down payment on the new primary residence? I believe if you use a HELOC to purchase another rental property, the interest on the HELOC payments becomes tax deductible, but I'm a little fuzzy on the rules if it's used to purchase a new primary residence. Or would it make more sense to take out another HELOC on our current primary residence for this down payment? Or is a HELOC a bad idea altogether for a new primary residence?

2. Given the numbers I've listed for the properties above and the current loan to value ratios, does purchasing another primary residence (~600k with 20% down) seem like we're over leveraging ourselves? We're ok with a certain level of risk, but just want to make sure we're not doing anything too crazy.

Thanks in advance for any input!