@Jordan Archer let's say you make a 7% cap rate on your property before you account for depreciation interest etc. and for math sake the property is $100k $3,300 gets deducted for depreciation and another $2,500 goes to paying interest. 

Without more information, 2 things:1) hit the ground running and deal with your cold feet inside the option period. 2) if you are purchasing a property in need of the repairs you describe, lay out the scenario with your lender, make sure you have enough for all the repairs, and run the math on comps and whether you can increase rents to cover the improvements.

I can by my math do this with no additional funds out of my pocket, just by applying my positive cash flow from the rental to the HELOC each month in payment. 

By my math it will be approx 4500 sq/ft. (60 by 75).

The idea of self-managing anything further than ~45 minutes away is crazy.I'm also a fan of Western MA, the Berkshires.

Only the math can say for sure.Two other points to consider: When you sub-divide your land, your current house is on a smaller lot and will likely be worth less money, especially when situated next to a MFR, which most SFH buyers won't like.Would this be your best use of capital?

You're at 20% with you math, which is fine... especially since you have that misc reserve.

You can file a claim with your insurance company and it will be counted as a loss and you can also write this off as vacancy when you do your taxes but your premium will go up so you have to do the math on whether that will work out for you. 

I didn't do the math; but I know it is not 1%!

Maintenance etc est = 150 (for easy math) vacancy = 0% (for easy math) -> Alternative cash flow = 1000 - 850 - 150 - 150 = -$150/moSo in this set up I'd still be negative cash flowing, just way better than if I was in a rental.Now, the only part of this comparison that I haven't quite gotten my head around is the ROI -- the rental purchase requires an outlay of several thousand in cash down payment that the rental doesn't.