Renovating and then Refinancing (Canada)

1 Reply

Hi everyone,

I am new to the real estate game so I have some  questions.

I am going to be purchasing my first live-in property this coming year and am considering one of the below two options:

Option A) Taking out a large mortgage for a nice duplex house with a legal basement unit that will help pay the mortgage; or

Option B) Taking out a small mortgage on a fixer-upper house, and putting in 30k worth of reno's and then refinancing afterwards.  After refinancing I would then use that extra $ to put a down payment on a modest investment/rental property.

Any opinions on what the better strategy would be are welcome as well.

However my main question is in regards to refinancing. I am somewhat familiar with the BRRRR startegy but just want to clarify.

Question: After I put 30k worth of reno's into my live-in property, I then simply get it re-appraised by the bank and then can pull out that value-add in cash to purchase my investment property?  Is this how it would work? Or what would be the best method to go about this?  

Please note that I am in Canada (Ontario).

Thank you!

Not so fast Dylan. The economic climate is changing daily right now. Run your numbers on both scenario and see which will give you better cashflow, less expense and potentially more equity, leverage etc. Here are the considerations with your plan:

Option A: How big of a mortgage are we talking about? If the mortgage is too big, your mortgage payment will be higher and thus you will have less to save towards your next property. This options is not really an investor option. It is more like "I want a primary residency, and great it has a 2ndary suite".

Option B: Get your $30k reno budget checked with someone else. Non investors will get the reno-bug. Before you know it the $30K is now $60K. That new sink needs a new shower head. That new shower head needs a new surround. You get my point (right?). Will your reno's improve the property value and by how much?  

I would go for Option B, as I don't like to be trapped in a large mortgage that only has 2 units and I am more of minimalist. 

In regards to your refi question, the banks will lend you upto approx 80-85% of the appraised value. Lets say you buy the property for $1M, put down 20% ($200K), your mortgage is $800K. After your $30K reno, the appraised value is now at $1.1M. That means you would be able to access $80K more (80% LTV). Then minus your reno, you end up with $50K. You can use this example and adjust the # for your situation. There are a lot of assumptions on this. In Toronto, not much you can buy with $50K.

In either option, look into getting a revolving HELOC/LOC tied to the mortgage.

Good luck. If I can be of further, just message me.