What's considered a BRRRR success in Canada?

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What's considered a BRRRR success in Canada?

Michael Hopkins
Rental Property Investor · Brampton, ON · Member since 2020 · 40 posts · 18 votes

Question regarding the Perfect BRRRR Deal. Just going through the ARV/FMV research. Of course the perfect BRRRR deal is to recoup all your money invested. Down payment + rehab costs + holding, etc. In the market I'm looking the numbers don't quite follow those guidelines. What if you only recoup your rehab costs? Both units in duplex are cash flow+ after all expenses. But you're still only in for your 20% down payment, closing/holding costs, refi costs, etc. Is that considered a win?

I'm looking at a SF and performing a MF conversion. Listed at 400K. Most likely go for 450K in our current hold offers/multiple bids world. Say 90-100k rehab costs. Should be able to refi to reach an ARV of 550K. Both units would be cash flowing $184/unit/mo. After all expenses including, capex 5%, property management 8%, maintenance 5%, taxes, insurance, utilities, etc. I estimated most costs, rent, etc. on the low end. My calculations say a CAP rate of 4.8% and COC of only 2%.

Would this be considered a good deal in Canada? Is anyone here doing deals with these kind of numbers? Would love some feedback. Viewing the property Saturday and they’re holding offers till Tuesday.

Thanks! :)

😀
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Account Closed
Member since 2019 · 1k+ posts · 1k+ votes
6y

@Michael Hopkins

My target is 100% investment returned at mortgage renewal. I don’t see a ton of advantages in buying all cash up here as I’ve always been able to refinance even as early as 9 months in. Variable rate keeps penalties low low low (3 months interest) and usually if you refi with be be same lender they’ll cover that if you ask and press a little. I target 2 or 3 year terms, 25-30 yr amm, and have been able to complete this each time without much hassle.

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  • Brian Murphy
    New to Real Estate · Edmonton, Alberta · Member since 2020 · 10 posts · 5 votes
    6y

    Following 

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  • Account Closed
    Rental Property Investor · Port Coquitlam, BC · Member since 2017 · 520 posts · 527 votes
    6y

    @Michael Hopkins if you are going to offers on a SF, you are up against emotional buyers (homeowners) and you aren't going to get the deal at a price that you like (i.e. a price that makes sense) .... So... assuming you pay $450K and spend $100k, your total buy-in is $550k....If you are estimating an ARV of $550k you have no equity, and no BRRR

    1Reply
  • Michael Hopkins
    OP
    Rental Property Investor · Brampton, ON · Member since 2020 · 40 posts · 18 votes
    6y

    Thanks, @Chris Baxter, as always!

    But when I refi after, say 8 months. Won't I have $190K in equity now? 90K downpayment + 100K appreciation from rehab. Won't I be able to pull back out my rehab costs on the refi?

    Plus that rehab now lets me get top dollar rent for both units. If I'm looking now long term hold, is that not a good idea/deal?

    0Reply
  • Account Closed
    Rental Property Investor · Port Coquitlam, BC · Member since 2017 · 520 posts · 527 votes
    6y

    @Michael Hopkins your original post asked if its a good BRRR deal... which it isn't. Whether it is a good buy and hold is a different question.

    Here is why it isn't a BRRRR

    Purchase at $450k with 90K down = 80% LTV. On refi, lenders will allow a max of 80% LTV on the ARV. In your example, this would be $550k*0.8 = $440k. Your existing mortgage (neglecting paydown during rehab) will be $360k+your rehab costs are 100k. $360+$100 > $440k

    As a buy and hold, you are putting $90k down + $100k rehab = $190k to get $368/month cashflow...  yuck (and that assumes that everything goes perfect with no surprises in the rehab converting a SF into a duplex).

    1Reply
  • Michael Hopkins
    OP
    Rental Property Investor · Brampton, ON · Member since 2020 · 40 posts · 18 votes
    6y

    @Chris Baxter

    Was just typing this up when you replied! I just realized it's not a BRRRR, but a buy and hold. I'm missing the last R; Repeat. But after the refi, I can only pull out 80K by my numbers. So I would then be in for 110K.

    Maybe just easier buying a turn key for 550K. In for the same amount but no Reno to deal with. Unless I really make the budget work in my favor on the Rehab and do more of the work myself to save the cash.

    0Reply
  • Account Closed
    Rental Property Investor · Port Coquitlam, BC · Member since 2017 · 520 posts · 527 votes
    6y

    @Michael Hopkins if you have $200k to invest, you can BRRRR a MF in a smaller market and get much better returns. Forget any market where you have to pay $500K+ to buy a SFR and get all the stars to align perfectly to add any value

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  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    6y

    My opinion regarding BRRRR's, especially in expensive and tight markets, is that as long as you're close, you're doing well (assuming you have the money to make up the difference). Of course, the goal in any market is to "BRRRR out" and that's still what you should aim for.

    Podcast Guest on Show #121
    1Reply
  • Nick Pastore
    Rental Property Investor · Toronto, Ontario · Member since 2018 · 20 posts · 5 votes
    6y

    @Michael Hopkins

    What area are you looking to buy in?

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    6y

    If you plan on refinancing, look at what your new mortgage payments would be.  The amount of cash flow is not bad, you just have to keep in mind how much you will have to put into it and it will be vacant during the renos.

    1Reply
  • Michael Hopkins
    OP
    Rental Property Investor · Brampton, ON · Member since 2020 · 40 posts · 18 votes
    6y

    Thanks @Andrew Syrios. Yeah I was misleading myself calling it a BRRRR when really it's a buy and hold. In this market area just recouping my Reno cost will be a win imo. This is long term strategy in a nice neighbourhood, so hopefully bringing along great tenants. Hold for a few years and then refi again to buy another. My goal is to have the nicest duplex's in the city. Then my brand will help attract those JV partners I'm going to need in a couple years to continue to scale.

    0Reply
  • Michael Hopkins
    OP
    Rental Property Investor · Brampton, ON · Member since 2020 · 40 posts · 18 votes
    6y

    Hi @Nick Pastore.

    This particular deal is in Peterborough. I know rents are going to continue to be great in this market. Not counting on appreciation but that will be the cherry on top.

    1Reply
  • Michael Hopkins
    OP
    Rental Property Investor · Brampton, ON · Member since 2020 · 40 posts · 18 votes
    6y

    @Theresa Harris

    Yes, great point. Reaching out to my broker today to get an idea of the refi mortgage range. That would not be a good scenario if my payments outgrew the cash flow!

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    6y

    I don't know about ON, but in some provinces there is a cap on how much you can increase rent every year. The exception is with turnovers.  So while long term tenants are great in areas where demand is high and rents increase quickly, the occasional turnover allows you to get the rent back up to market value.

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  • Account Closed
    Rental Property Investor · Port Coquitlam, BC · Member since 2017 · 520 posts · 527 votes
    6y

    @Theresa Harris  Ontario is the worst market for rental increase.  The permitted increase for 2021 is .... ZERO!

    So @Michael Hopkins's plan to have the nicest duplexes that need no renovation will result in long term tenants that never want to leave, with rents pegged to 2020 levels.  Costs go up, revenue stays flat.

    We sold our last holdings in Ontario this year for that very reason... had nice properties that were "too nice" and tenants that were sheltered from paying market rents due to the tenant friendly system of rent controls. 

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  • Account Closed
    Member since 2019 · 1k+ posts · 1k+ votes
    6y

    @Michael Hopkins

    My target is 100% investment returned at mortgage renewal. I don’t see a ton of advantages in buying all cash up here as I’ve always been able to refinance even as early as 9 months in. Variable rate keeps penalties low low low (3 months interest) and usually if you refi with be be same lender they’ll cover that if you ask and press a little. I target 2 or 3 year terms, 25-30 yr amm, and have been able to complete this each time without much hassle.

    2Reply
  • Account Closed
    Member since 2019 · 1k+ posts · 1k+ votes
    6y

    @Michael Hopkins

    If you’re putting $100k in to receive a bump of only $100k you’re doing something wrong. Quite possibly this property is a bad candidate. Target 1.5x return on renovation dollars. Why? Because you’ll over run on spending and the appraiser will be a tight bugger and with 1.5x as your target you’ll still get your $ back out most likely.

    2Reply
  • Steve Morris
    Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes
    6y

    "My calculations say aCAP rate of 4.8% and COC of only 2%."

    Kinda hard to say.  Is it 2% C-C for a long time or will your rehab/conv make it a lot better cash generator.

    Since I don't think you get the tax breaks we do here in Trump-landia, 2% without any tax shelter isn't real great considering the risk involved compared to safer investments.

    0Reply
  • Andrew SyriosPro Member
    Moderator
    Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
    6y
    Originally posted by @Michael Hopkins:

    Thanks @Andrew Syrios. Yeah I was misleading myself calling it a BRRRR when really it's a buy and hold. In this market area just recouping my Reno cost will be a win imo. This is long term strategy in a nice neighbourhood, so hopefully bringing along great tenants. Hold for a few years and then refi again to buy another. My goal is to have the nicest duplex's in the city. Then my brand will help attract those JV partners I'm going to need in a couple years to continue to scale.

    I don't think that's misleading but yeah, I get your point. Buy and hold is great, if you can get built-in equity, it's even better and if you can BRRRR out, it's even better still

    Podcast Guest on Show #121
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  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    6y

    BC is the same.

    0Reply
  • Geoff Langford
    Member since 2018 · 2 posts · 0 votes
    6y

    BC is actually limited to 1.4% increase for 2021 ('guided' by inflation). AB on the other hand - no restrictions (after the first year of tenancy).

    0Reply
  • Account Closed
    Member since 2019 · 1k+ posts · 1k+ votes
    6y

    @Geoff Langford

    SK increase 2x/ year (if month to month) or at end of term if on a term lease.

    0Reply
  • Account Closed
    Rental Property Investor · Port Coquitlam, BC · Member since 2017 · 520 posts · 527 votes
    6y

    Here is a pre-pandemic view of permitted rental increases in each province:

    https://locnest.com/ca-en/cana...

    Landlord friendly are:

    • AB
    • NB
    • NL
    • NS
    • QC
    • SK

    Ontario, BC, PEI, Manitoba all restrict how much a landlord can increase rents.

    1Reply
  • Kiril Nikolaev
    Investor · Pickering, ON · Member since 2020 · 46 posts · 14 votes
    5y

    @Account Closed Thank you for sharing that. This is very helpful in knowing which provinces are investor friendly!

    Question to people on this thread: how do you find good BRRRR deals in Ontario (and in general)?

    0Reply
  • Brian Murphy
    New to Real Estate · Edmonton, Alberta · Member since 2020 · 10 posts · 5 votes
    5y
    0Reply
  • Brian Murphy
    New to Real Estate · Edmonton, Alberta · Member since 2020 · 10 posts · 5 votes
    5y

    https://youtu.be/KbMDsAUZ8n8I 

    Hi

    I came across this video on Matt McKeevers channel  where for just 20k down you can get private finance up to 800k. Obviously you will have to have collateral etc as well as the terms and conditions. But it might save the 20% down that is usually required for a Brrrr

    0Reply
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