Cash damming speed is capped by your expenses
Every thread I read about cash damming argues about whether it is worth doing. Almost none of them explain what actually sets the pace, so I worked it out properly and the answer was not what I expected.
Quick version of the mechanic for anyone who has not seen it. You own a rental personally and you also carry a mortgage on your own home, which in Canada is not deductible. You use the rent to make an extra payment against the home mortgage. On a readvanceable setup that principal re advances into the attached credit line. You then borrow from that line to pay the rental expenses. The rent paid the home mortgage, borrowed money paid the rental bills, and the interest on that borrowing may be deductible, when set up properly with your accountant.
Worth being blunt about what that does and does not do. Your total debt does not fall any faster. You are converting the character of the debt, not eliminating any of it. If someone describes this as paying off your mortgage early for free, they have skipped a step.
Here is the part nobody seems to write down. You can only convert as much as you borrow, and you can only borrow for expenses that actually qualify. So the ceiling on the whole strategy is your annual deductible rental expense bill. Your rent does not set it. Your equity does not set it. Your tax bracket does not set it.
Running real numbers on a duplex with a $430,000 mortgage at 4.24 percent over 25 years, the payment is $2,318 a month. Year one interest is about $17,880. Add property tax around $4,800, insurance $2,100, utilities you cover $2,400, and maintenance $3,000, and the engine is roughly $30,180 a year.
Two things fell out of that which I had wrong going in.
The first is that the payment is $27,816 a year but only $17,880 is interest. The remaining $9,934 is principal, and principal repayment is not a rental expense. It does not go on a T776 and it is not part of the engine. I had been mentally running the whole payment through the strategy, which overstated my own projection by almost ten grand in year one. There is a more advanced treatment where borrowed money replaces that principal and the interest may still be deductible because the funds trace back to the original purchase of the rental, but that is a different mechanic with different paperwork and it is a question for an accountant, not something to assume.
The second is that the engine shrinks. As the rental mortgage amortizes the interest line falls, from $17,880 in year one to about $16,071 in year five and $13,321 in year ten. Other expenses drift up with inflation and cushion it, but the biggest single line only goes one direction. The engine you size today is the largest it is ever going to be.
The practical consequence is that two landlords with identical rent can convert at completely different speeds. Someone with a leveraged property and expenses they pay themselves has an engine two or three times the size of someone whose rental is nearly paid off and whose tenants cover the utilities. Same rent roll, very different outcome.
This is real administrative work for years, not a one time setup. Borrowed money has to move through a dedicated account and never mix with personal cash, because CRA tests what the funds were used for, and mixing breaks the tracing and the deduction with it. It only applies to rentals held personally, not in a corporation. It does not create cash flow, it reroutes it. And if your expense bill is small next to your home mortgage, the arithmetic says the conversion will take long enough that you should ask honestly whether the ongoing effort is worth it.
