I am estimating 1000 sq ft of external siding.  

It's an operating business.  1031 doesn't apply to inventory or property held for sale.For specific advice you should on-board a tax professional who can advise you as an external member of your team.

They get backed up regularly to an external hard drive.Whether you use spreadsheets or property management software on your PC, always back up the files. 

I liked the idea of starting out with a Townhouse, because it had a reasonable HOA fee; but I knew the HOA covered common area and external maintenance items like the roof, siding and parking lot.

I had come to like Townhouses because of the common area and external maintenance most often covered by the HOA fee.

I had to replace 5 external doors to the tune of $6K, and next project is digging a rubble drain in the basement to the tune of $3K.

On top of that I look at external forces such as developments and crime rates in the area to see how it can prosper. 

Also provide external and internal access to upstair room, which I could stay time to time whenever I want a weekend getaway.Does anyone have better ideas or see any potential issues in this plan?

.-$13,200 isn't true cash flow but it is what we captured beyond monthly payment over 2 years, we can assume 35% for expenses since this property is remodeled and the HOA cares for the roof and external structure.Total gain over 3.5 years:-$62,500 in Equity on Home #1-$30,000 in Equity on Home #2-$6,600 in Cash Flow on Home #1-$20,000 in Debt Pay-down for both homes combined-Plus tax savings that I don't know off-handWhen you look at each wealth generator I imagine REI far outperformed my 401K had I left my original $15,000 slow-cooking.Total Gain: $120,000Total Cash Invested: $35,000Net Gain: $85,000Next, I'm most likely selling the original home and acquiring a deal that net almost 5x the cash flow of that SFR. 

.-$13,200 isn't true cash flow but it is what we captured beyond monthly payment over 2 years, we can assume 35% for expenses since this property is remodeled and the HOA cares for the roof and external structure.Total gain over 3.5 years:-$62,500 in Equity on Home #1-$30,000 in Equity on Home #2-$6,600 in Cash Flow on Home #1-$20,000 in Debt Pay-down for both homes combined-Plus tax savings that I don't know off-handWhen you look at each wealth generator I imagine REI far outperformed my 401K had I left my original $15,000 slow-cooking.Total Gain: $120,000Total Cash Invested: $35,000Net Gain: $85,000 (plus whatever tax benefits we've received - highest returns yet!)