RE investors in Canada know very well they can take a HELOC on their primary residence to fund the purchase of a rental property, allowing them to have a deductible loan interest payment (good debt).

My situation is a little different. I have a completely paid off plex that I intend to rent out once I find a single fam residence to live in. However, using the rental income to pay off my primary residence mortgage (bad debt) is not ideal due to being taxed over 40% (due to my income bracket) on the rental income first before I can pay off the non deductible loan interest.

I've read about Smith Manoeuvre, and I was thinking about doing something similar.

In short, here are the steps in my case:

1. Take a HELOC on my paid off plex
2. Sell all my current investments for a higher downpayment
3. Use HELOC money to reinvest on what I have sold off in step 2
4. Now HELOC loan interest becomes tax deductible (good debt) and I will use rental income to offset the deductible loan interest
5. End result: high downpayment on personal residence, tax deductible HELOC, rental income will not be taxed on my bracket and can be fully used to pay HELOC interest

The problem with this is the complexity of selling my current investments (therefore triggering tax events), moving money around which costs fees and overall just very easy to make a financial mistake.

Is there a way around this to basically turn my personal (bad) debt to investment (good) debt? Any suggestions?