BRRRR Method in Canada

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BRRRR Method in Canada

Account Closed
Member since 2023 · 5 posts · 4 votes

Hello,
My name is Max. I am a 21 year old living in Canada, more specifically Fredericton, NB and I am looking to get into my first property and thus the world of real estate. I am currently in a position where I do not have mountains of capital to spend on buying a house, so, I am hoping to use the BRRRR method to stretch what money I do have as much as possible. When listening to the bigger pockets podcast, I notice FHA loans being mentioned quite frequently because they give the customer the ability to purchase a house with a very small down payment (aka. very little of their own money). I believe that something like an FHA loan would be a great option for someone in my situation, however, sadly, in Canada FHA loans are not offered which brings me to my question. Can you use the BRRRR method in Canada without being able to utilize FHA loans? If so, what loans would be best/most similar to FHA loans (potentially a CMHC insured mortgage would be a good option)? And finally, outside of what I've already mentioned (CMHC loan), do you have any other/better recommendations to help someone, in the financial situation that I am in, get into their first property? And I do want to make it clear that, in keeping with the BRRRR method, my goal after buying and rehabbing my first property is to refinance in order to buy a second property as quickly as possible.

Thank-you for your time and I look forward to reading your responses.


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  • Stevo Sun
    Calgary, AB · Member since 2021 · 327 posts · 176 votes
    3y
    Quote from @Account Closed:

    Hello,
    My name is Max. I am a 21 year old living in Canada, more specifically Fredericton, NB and I am looking to get into my first property and thus the world of real estate. I am currently in a position where I do not have mountains of capital to spend on buying a house, so, I am hoping to use the BRRRR method to stretch what money I do have as much as possible. When listening to the bigger pockets podcast, I notice FHA loans being mentioned quite frequently because they give the customer the ability to purchase a house with a very small down payment (aka. very little of their own money). I believe that something like an FHA loan would be a great option for someone in my situation, however, sadly, in Canada FHA loans are not offered which brings me to my question. Can you use the BRRRR method in Canada without being able to utilize FHA loans? If so, what loans would be best/most similar to FHA loans (potentially a CMHC insured mortgage would be a good option)? And finally, outside of what I've already mentioned (CMHC loan), do you have any other/better recommendations to help someone, in the financial situation that I am in, get into their first property? And I do want to make it clear that, in keeping with the BRRRR method, my goal after buying and rehabbing my first property is to refinance in order to buy a second property as quickly as possible.

    Thank-you for your time and I look forward to reading your responses.



    BRRRR method is not really dependent on the mortgage/loan type. It more about the math around the project. You need to get into a deal at a sufficiently cheap price, renovate the property, get a high ARV, refinance at a low enough rate for you to cashflow after you pull the money out.

    The first thing you need to do is to find a market that you can cashflow in. Imagine a turnkey property at 80% loan to value. Can you cashflow that in your market with current rates? That's a hard thing to achieve in Canada. Also in most cases you will need 20% down payment for a investment property in Canada. If you are BRRRRing without house hacking then you will have to have a certain amount of capital to get started. The CMHC insured mortgage (which you can do 5% down) is for owner occupied properties. 

    Once you find a market with cashflow and some capital to start. You will then have to find a deal that will allow you to get an ARV where you can finance out 80% LTV which likely means you will have to leave a portion of the starter capital in the deal.

    Then you can rinse and repeat. Just set your expectations properly that BRRRRing in Canada is difficult with current rates. Best of luck! 

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  • Anthony Therrien-Bernard
    Realtor · Calgary, Alberta · Member since 2018 · 292 posts · 132 votes
    3y
    Quote from @Account Closed:

    Hello,
    My name is Max. I am a 21 year old living in Canada, more specifically Fredericton, NB and I am looking to get into my first property and thus the world of real estate. I am currently in a position where I do not have mountains of capital to spend on buying a house, so, I am hoping to use the BRRRR method to stretch what money I do have as much as possible. When listening to the bigger pockets podcast, I notice FHA loans being mentioned quite frequently because they give the customer the ability to purchase a house with a very small down payment (aka. very little of their own money). I believe that something like an FHA loan would be a great option for someone in my situation, however, sadly, in Canada FHA loans are not offered which brings me to my question. Can you use the BRRRR method in Canada without being able to utilize FHA loans? If so, what loans would be best/most similar to FHA loans (potentially a CMHC insured mortgage would be a good option)? And finally, outside of what I've already mentioned (CMHC loan), do you have any other/better recommendations to help someone, in the financial situation that I am in, get into their first property? And I do want to make it clear that, in keeping with the BRRRR method, my goal after buying and rehabbing my first property is to refinance in order to buy a second property as quickly as possible.

    Thank-you for your time and I look forward to reading your responses.



    As Stevo mentioned the BRRRR method isn't really dependent on the type of mortgages you can get, but in Canada you usually can't refinance at more than 80% LTV, so if you are buying at 95% LTV with CMHC you would need more of an uplift (or wait longer) to pull capital out of the refinance. To me personally a BRRRR doesn't have to be perfect (get all your money out) to be worth it, in fact more often than not you will have to leave money into the deal, but even if I get half my money out that still almost doubles my return on capital (less cash left into the deal=higher return on capital). I should add that the BRRRR method is not the only way to "rince and repeat" with your invested money, but it is often the quickest on buy and holds. I have pulled significant amount of equity out of pure buy and hold with no renovations as well, usually you just need to wait longer for the principal pay down and market appreciation to build up equity into the deal.

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