From Jon’s desk: As a young kid, I was told to save my pennies for a rainy day, for unexpected expenses and for the purpose of investing into a skill, job or asset. I’m thankful for this lesson as it’s something I practice diligently to this day. And as I’m continually learning and investing, my wife and I realized that we have the capacity to create amazing opportunities for our kids future, to be able to take care of our extended family and to be generous. This is my big why and it’s a significant part of my purpose. (There’s way more to my purpose, but that’s a whole different post 😉).
The thing is, I talk to so many people who want to take care of their financial future but that they don’t have a clue as to where to start. Allow us to help cut through the noise and introduce you to a tried, tested and true investment strategy that we are currently using to help our clients create a life of opportunity.
Billionaire Andrew Carnegie famously said that 90% of millionaires got their wealth by investing in real estate.
THE BRRRR METHOD
Buy, Renovate, Rent, Refinance and Repeat. It’s as easy as it sounds, let me break it down.
The goal of this investing method is to acquire a property that needs work so you can raise the value (force appreciation) and to refinance and pull as much of your money out as possible which you can use to buy another investment property.
A bungalow with a separate entrance, adding a basement suite to accommodate two separate tenants. A 2.5 storey that could be developed into 4 separate units.
An apartment building in need of a renovation so as to get higher monthly rents.
Let’s take a look at this case study of a property purchased in Hamilton to focus on the numbers:
1. Purchased 2 unit 2.5 storey home in Hamilton
$800 per month main floor. (What the old tenants were paying)
#925 per month top floor
Total income = $1,725
2. Force Equity: Add additional hydro metres (4 total), dividing the home into 4 units and so that all tenants pay their own hydro.
3. Renovate: Maximize space, create great floor plans with quality finishes. Keep renovations below $150,000
4. Rent: Main floor (2 bedroom) $1,600 per month , Second floor (2 bedroom) $1625 per month, Basement (Bachelor) $900 per month
+ Coin laundry $100 per month
Total gross income = $4,225 x 12 = $50,700 a year
Purchase price $250,000
20% down payment $50,000 (out of pocket)
Original Mortgage $200,000
Renovation Cost $153,000 (out of pocket)
Refinance appraisal after rented: $600,000
Borrow against new value at 80% LTV = $480,000 (bank gives you this amount as a traditional mortgage which investors use to pay off their initial investments)
New Mortgage Amount $480,000
Less Original Mortgage -$200,000
Less reno Cost – $153,000
Closing Costs +Carrying – $14,000
$0 left in the property + $63,000 payout.