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.

Step 1:

Locate a property that has potential to be developed into a multi-family. Your budget and risk tolerance will determine where you start, here are a few examples
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.

Step 2:
The renovation process. Remember, you get what you pay for so be careful to screen all contractors thoroughly. As for a referral or if you need someone, we have a list of preferred vendors. TIP: The quality of the space determines the quality of the tenant. Don’t be afraid to target as specific demographic that is looking for a year long lease only. This will allow you to raise the monthly rents every year when a new tenant moves in. Find people looking to pay for quality!

Step 3:
Get the property leased. If you take this on yourself, screen, screen and screen some more. If you need help, reach us here.

Step 4:
Get the property refinanced so you can pay off your short term borrowing and/or construction loan with a long term mortgage. A general rule, the greater the renovation, the greater the appreciation. Keep in mind, the mortgage is based off of the newly appraised value.
CASE STUDY

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)

                                      $403,0000 Invested 

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.

Now you effectively own a house that is paying down a mortgage with someone else’s money AND putting money in your pocket every. single. month. We can help you.  Call or Email us today!