Duplex BRRRR, Hamilton, Ontario

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Duplex BRRRR, Hamilton, Ontario

Terry Nguyen
Rental Property Investor · Toronto, ON · Member since 2019 · 25 posts · 15 votes

Hey BP,

Wanted to document my first real estate investment. Purchased a Single Family Home (SFH) in Hamilton, Ontario with the plan the concert it to a Duplex. Not only is this my first investment property, it's also my first Joint Venture (JV), I partnered with 2 other people (friends of mine).

All 3 of us have construction backgrounds. My partners used to and currently work for Mattamy Homes. I’m an electrician in the commercial and residential field.

House details:

2 1/2 Storey SFH Detached w/ basement

3 Bed

1 1/2 Bath

2 Car Parking

1,250 SQFT

Plan:

Duplex Conversion

Unit One:

Basement and Main Floor

3 Bed

1 1/2 Bath

Open Concept Living and Kitchen

En-suite Laundry

Fully Renovated with High End Modern Finishes

$1,650 + Hydro/Month

Unit Two:

Second Floor and Loft

3 Bed

1 Bath

Open Concept Living and Kitchen

En-suite Laundry

Fully Renovated with High End Modern Finishes

$1,850 + Hydro/Month

Numbers:

Purchase Price: $425,000

Down Payment (20%): $85,000 - Cash

Closing Costs: $7,000 - Cash

Mortgage: $340,000

Renovation: $100,000 - Cash

Permit Drawings and Application: $14,000 - Cash

Total Cash Invested: $206,000

Now we have the property, it’s going to be fully renovated and time to rent and re-finance. Let’s see how that will look for us.

Time to BRRRR!

After Repair Value (ARV): $650,000

Re-Financed Mortgage (80% LTV): 80% x $650,000 = $520,000

Payback first mortgage: $340,000

$180,000

Total Cash Invested: $206,000

-$26,000

Total Cash Left in Deal: $26,000

If things go to plan then we will take out 87% of our capital ($180,000) and then we can repeat the process and go look for another property!

Now we control a $650,000 Duplex for $26,000, awesome!

Do we cashflow? Let’s look.

Rent: $3,500

Expenses w/ Mortgage: $3,135

Positive Cashflow: $365 per month x 12 = $4,380 per year

Alright, Positive Cashflow!

What's our ROI?

Cash on Cash (COC) ROI: $4,380/$26,000 = 16% COC ROI

Overall Return: including Cashflow, principal pay down and assuming 3% capital appreciation in Hamilton based on historic rates: $4,380 + $10,257 + $19,500 = $34,137/$26,000 = 131% OVERALL RETURN!

Real estate is something else. I should have bought properties when I was 18. But it’s good to get my foot in the door and keep moving forward!

This is property #1! Starting renovations closer to October, stay tuned, it will be documented as best as we can. Pictures and videos, it will be a fun one!

Any comments and questions please ask, always looking to learn more and connect with like-minded people.

Cheers

Terry

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Most Popular Reply

Robin Valadares
Rental Property Investor · Stoney Creek, Ontario · Member since 2016 · 34 posts · 4 votes
7y

Congratulations @Terry Nguyen. Great to see a local investor succeeding! Thank you for providing us with that breakdown! Just to confirm, is the unit fully converted yet (and these numbers are actual), or are these figures projected?

1Reply
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  • Brian Kouhi
    Oakville, Ontario · Member since 2019 · 1 post · 0 votes
    7y

    Awesome guys thanks for sharing! can't wait for the updates. I'm personally saving up for a down payment right now, and am planning on purchasing my first property around Hamilton area as well, so this really helped! 

    0Reply
  • Terry Nguyen
    OP
    Rental Property Investor · Toronto, ON · Member since 2019 · 25 posts · 15 votes
    7y

    @Brian Kouhi Glad it was helpful. Awesome man, keep saving and try to get into the market ASAP. As they say, you don’t wait to buy real estate, you buy real estate and wait

    1Reply
  • Duncan Pratt
    Rental Property Investor · Barrie, ON · Member since 2018 · 14 posts · 1 vote
    7y

    Awesome stuff Terry! This break down fired me up aha

    0Reply
  • Patrick Archer
    Member since 2018 · 33 posts · 10 votes
    7y

    I'd caution you with the following. You're taking a SFH and you've converted it to a duplex. Now that it's a true investment property, it's valuation is going to be based on different factors that are important to investors (like cap rate). You should find out what the average cap rate is for your area and use that to calculate out the value of the property (If you want to be conservative use an 8% cap rate, aggressive would be 5%). That will give you the value of what your property would likely sell for. With that being said, it's really depends on the value that you're bank puts on the improvements made to the property as to whether or not you'll be able to refinance in the mid $600s.

    0Reply
  • Terry Nguyen
    OP
    Rental Property Investor · Toronto, ON · Member since 2019 · 25 posts · 15 votes
    7y

    @Duncan Pratt Thanks Duncan! I’m glad I could help in some way! Hopefully you’re looking at getting your next property soon

    0Reply
  • Terry Nguyen
    OP
    Rental Property Investor · Toronto, ON · Member since 2019 · 25 posts · 15 votes
    7y

    @Patrick Archer Hey Patrick, thank you for the caution. Cap rates is definitely something we came across when looking at investment properties but from my understanding it only truly affects commercial multi-family properties (5+ units). Is there a way that you can confirm that with me about using the cap rate to determine the valuation for a duplex? Because that may change my numbers

    According to local multi-family investors and experts, the average cap rate in Hamilton is around 5-5.5%.

    So assuming a 5% Cap Rate and our NOI is $1204/month = $14,448/year. NOI / Cap Rate. That would leave the valuation at $288,960.

    I agree it depends on the value that my bank puts on the improvements made to the property as to whether or not I’ll be able to refinance in the mid $600’s. Do you know how they determine that? Would love to learn more about calculating that number

    Thank you

    0Reply
  • Patrick Archer
    Member since 2018 · 33 posts · 10 votes
    7y

    I’m in London and cap rate is used to get a rough price in any MFH (2+ units).  

    Your numbers above seem low though.  Remember not to include the cost of your mortgage in operating expenses when calculating cap rate.

    0Reply
  • Terry Nguyen
    OP
    Rental Property Investor · Toronto, ON · Member since 2019 · 25 posts · 15 votes
    7y

    @Patrick Archer What are the average cap rates in London?

    Yes you’re right. My calculation was wrong. I deducted the mortgage from the gross rent and not the operating expenses.

    NOI is actually $2,660/mth x 12 = $31,920/year. NOI / 5% Cap Rate = $638,400. That makes a lot more sense. Thank you

    0Reply
  • Robin Valadares
    Rental Property Investor · Stoney Creek, Ontario · Member since 2016 · 34 posts · 4 votes
    7y

    Congratulations @Terry Nguyen. Great to see a local investor succeeding! Thank you for providing us with that breakdown! Just to confirm, is the unit fully converted yet (and these numbers are actual), or are these figures projected?

    1Reply
  • Terry Nguyen
    OP
    Rental Property Investor · Toronto, ON · Member since 2019 · 25 posts · 15 votes
    7y

    @Robin Valadares Hey Robin, these numbers are projected. Will definitely be keeping this thread updated as we go through renovation, tenant selection and re-finance process for finalized numbers.

    Check your inbox as well, we connected months back and wanted to reach out again

    Cheers

    Terry

    0Reply
  • Jay Gill
    Brampton, Ontario · Member since 2017 · 47 posts · 10 votes
    7y
    Originally posted by @Terry Nguyen:

    @Patrick Archer Hey Patrick, thank you for the caution. Cap rates is definitely something we came across when looking at investment properties but from my understanding it only truly affects commercial multi-family properties (5+ units). Is there a way that you can confirm that with me about using the cap rate to determine the valuation for a duplex? Because that may change my numbers

    According to local multi-family investors and experts, the average cap rate in Hamilton is around 5-5.5%.

    So assuming a 5% Cap Rate and our NOI is $1204/month = $14,448/year. NOI / Cap Rate. That would leave the valuation at $288,960.

    I agree it depends on the value that my bank puts on the improvements made to the property as to whether or not I’ll be able to refinance in the mid $600’s. Do you know how they determine that? Would love to learn more about calculating that number

    Thank you

     Hi Terry, thanks for this great thread! I think it will be useful for a lot of people, I can't wait to see the progress/results.

    Your quoted cap rates are accurate, but they will not apply to your property at all.

    0Reply
  • Terry Nguyen
    OP
    Rental Property Investor · Toronto, ON · Member since 2019 · 25 posts · 15 votes
    7y

    @Jay Gill Hey Jay, thank you. I wanted to document this because I find Canadian Real Estate content sometimes a little tricky to navigate. Hopefully it will help some people and it will be a great way to show potential partners and investors what we’re capable of. Stay tuned for updates!

    0Reply
  • Mike Oliveira
    Rental Property Investor · hamilton, Ontario · Member since 2015 · 66 posts · 15 votes
    7y

    Hello terry, based on my experience with the Brrrr. they will take your income into account but your correct about cap rates. they are used to determine the value on 5+ units. They will definitely look at comparable duplexes in the area when determining the value of yours. As well as how much you spent in upgrades on the property.

    0Reply
  • Terry Nguyen
    OP
    Rental Property Investor · Toronto, ON · Member since 2019 · 25 posts · 15 votes
    7y

    @Mike Oliveira Hey Mike, thank you for the tips about the ARV for the BRRRR strategy. We have some duplex comps to go off of that's where we have our projected ARV right now. In your experience, would the mortgage lender also account for the rental income on the units as part of the income qualification for the re-finance?

    0Reply
  • Mike Oliveira
    Rental Property Investor · hamilton, Ontario · Member since 2015 · 66 posts · 15 votes
    7y

    @Terry Nguyen yes they will include that as part of the refi.

    0Reply
  • Terry Nguyen
    OP
    Rental Property Investor · Toronto, ON · Member since 2019 · 25 posts · 15 votes
    7y

    @Mike Oliveira That’s great to hear. Do you know how they make that calculation?

    0Reply
  • Mike Oliveira
    Rental Property Investor · hamilton, Ontario · Member since 2015 · 66 posts · 15 votes
    7y

    @Terry Nguyen Not 100 percent sure. I would speak to a broker 

    0Reply
  • Dylan Earl
    Thorold, Ontario · Member since 2016 · 62 posts · 58 votes
    7y

    Right on @Terry Nguyen sounds like a good breakdown! Which part of hamilton did you target? Student area near McMaster or did you go up on the escarpment? Curious to learn more about your positioning and tenant market (especially with property management & maintenance)

    0Reply
  • Terry Nguyen
    OP
    Rental Property Investor · Toronto, ON · Member since 2019 · 25 posts · 15 votes
    7y
    Originally posted by @Dylan Earl:

    Right on @Terry Nguyen sounds like a good breakdown! Which part of hamilton did you target? Student area near McMaster or did you go up on the escarpment? Curious to learn more about your positioning and tenant market (especially with property management & maintenance)

    Hey @Dylan Earl, we are targeting downtown Hamilton right now. There is a lot of committed money for revitalization from the city so I believe the area will be much different in the next 5 years. The tenant demand is high right now for great units

    Are you invested in the Hamilton area as well?

    1Reply
  • Dylan Earl
    Thorold, Ontario · Member since 2016 · 62 posts · 58 votes
    7y
    Originally posted by @Terry Nguyen:
    Originally posted by @Dylan Earl:

    Right on @Terry Nguyen sounds like a good breakdown! Which part of hamilton did you target? Student area near McMaster or did you go up on the escarpment? Curious to learn more about your positioning and tenant market (especially with property management & maintenance)

    Hey @Dylan Earl, we are targeting downtown Hamilton right now. There is a lot of committed money for revitalization from the city so I believe the area will be much different in the next 5 years. The tenant demand is high right now for great units

    Are you invested in the Hamilton area as well? 

     Interesting! 

    I was born in Hamilton, grew up in Caledonia (Haldimand Norfolk). I'd be interested to learn more about the revitalization money. Is it in the form of TIFFs/ Facades incentives? I'd be interested in Hamilton for sure, especially near Bayfront Park. I'd also be interested in the west harbour block/neighbourhood where GO Train station is/is going!

    1Reply
  • Ryan Mascarenhas
    Halton Hills, Ontario · Member since 2015 · 1 post · 0 votes
    7y

    @Terry Nguyen - Fantastic work, Terry! Very inspirational. My wife and I are looking into investing into Hamilton as well and this lit a renewed fire. The house prices were messing me up.

    0Reply
  • Vince Delio
    Member since 2019 · 3 posts · 0 votes
    7y

    Hi Terry,

    Great post, can you elaborate where the $10,257 is coming from? I'm a new investor trying to comprehend your breakdown of the property.

    Thanks

    0Reply
  • Terry Nguyen
    OP
    Rental Property Investor · Toronto, ON · Member since 2019 · 25 posts · 15 votes
    7y
    Originally posted by @Dylan Earl:
    Originally posted by @Terry Nguyen:
    Originally posted by @Dylan Earl:

    Right on @Terry Nguyen sounds like a good breakdown! Which part of hamilton did you target? Student area near McMaster or did you go up on the escarpment? Curious to learn more about your positioning and tenant market (especially with property management & maintenance)

    Hey @Dylan Earl, we are targeting downtown Hamilton right now. There is a lot of committed money for revitalization from the city so I believe the area will be much different in the next 5 years. The tenant demand is high right now for great units

    Are you invested in the Hamilton area as well? 

     Interesting! 

    I was born in Hamilton, grew up in Caledonia (Haldimand Norfolk). I'd be interested to learn more about the revitalization money. Is it in the form of TIFFs/ Facades incentives? I'd be interested in Hamilton for sure, especially near Bayfront Park. I'd also be interested in the west harbour block/neighbourhood where GO Train station is/is going!



    https://www.hamilton.ca/city-initiatives/priority-projects/waterfront-redevelopment-west-harbour

    Here's a link specifically about the Harbourfront revitalization. This property from my OP is actually very close to Bayfront. Those areas you chose are very promising and ACTUALLY up and coming. Great place to start investing, prices are starting to go up that area, especially Strathcona.

    0Reply
  • Terry Nguyen
    OP
    Rental Property Investor · Toronto, ON · Member since 2019 · 25 posts · 15 votes
    7y
    Originally posted by @Ryan Mascarenhas:

    @Terry Nguyen - Fantastic work, Terry! Very inspirational. My wife and I are looking into investing into Hamilton as well and this lit a renewed fire. The house prices were messing me up.

    Thank you Ryan, the progress will be great and the end result will be even greater if we hit our projected numbers. The renovations will be top-notch. If you would like send me a message and we can talk or perhaps even meet for a coffee. Always nice to meet locals 

    0Reply
  • Terry Nguyen
    OP
    Rental Property Investor · Toronto, ON · Member since 2019 · 25 posts · 15 votes
    7y
    Originally posted by @Vince Delio:

    Hi Terry,

    Great post, can you elaborate where the $10,257 is coming from? I'm a new investor trying to comprehend your breakdown of the property.

    Thanks

    Hey Vince,

    Sure I'd be happy to elaborate on the $10,257.

    Going back to my OP:

    "Overall Return: including Cashflow, principal pay down and assuming 3% capital appreciation in Hamilton based on historic rates: $4,380 + $10,257 + $19,500 = $34,137/$26,000 = 131% OVERALL RETURN!"

    Cash Flow Year One: $4,380

    Principal Pay Down: $10,257

    Assumed 3% Capital Appreciation: $19,500

    Hopefully that clears it up

    0Reply
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