19 Year Old With Question About Refinancing

[Devon Rollison]

I am 19 and live in Alberta Canada, as my first real estate investment I am going to do a duplex for around $500k with 5% down Owner Occupied loan (Essentially I'm mixing house hacking with BRRRR). I then will do about $100k/ whatever the max I can do in renovations to match comps etc, and with that I will get about a $700k-$775k ARV (i'm also going to be a wholesaler so i can basically guarantee those profit margins via choosing from the best deals I get rather then wholesaling them).

So with this I will have $200k-$275k equity in the property, but the problem is.... With a traditional refinance of 80% LTV i will just hardly be able to pull out my full renovation money, and of course as a educated investor that has over 2000 hours of learning I want/need to use a lender for the renovations... So obviously that means with a 80% LTV I can just get the full amount of the lenders money back on a refinance, and ill have a massive $125k-$200k equity stuck in the property that I spent only about $50k of my own capital to get ie a 250%-400% NET return/equity in 6 months to a year MAX (potentially even 3 months+).

So my question is of course how do I get a cash out refinance LTV for like 90% or better yet the 95% that my loan originally is? It seems stupid that i can get it for 5% but need to refinance for 20%. All I can find on this subject is that it is possible however very hard and it was only in reference to the USA i'm pretty sure. So do you know how it works in Canada and if its possible/ how to do it, this sadly ruins my unbelievably good plan of a 250%-400% NET return/equity and no taxes paid on any of it, and all in only 6-12 months which is SUPER conservative. Also I do not care for the equity that is untouchable for 5-10 years and is taxes, even if it is as much as $1m+, the only money I care about is money that I can continuously re invest and doesn't get tied up in the asset so to keep my portfolio compounding in very high interest investments, and I am not doing regular flipping or anything other then 5% down house hacking/BRRR, I will find a way to make this work, worst case ever i just put down more money but that will ruin my ROI so please anyone if you have educated feedback, lets help each other.

[Jaysen Medhurst]

@Devon Rollison, understand I come from a U.S. perspective, so things may not be the same for you in Canada. Good on you for getting started so early. I like your enthusiasm.

That said, it's very unlikely, especially now, that any lender is going to allow you refi at a LTV higher than 80%. The bank has no incentive to do so. They want you to have a bunch of equity stuck in the property, that reduces their risk substantially. They care about one thing, you repaying the loan.

Let's be clear about something, 250-400% ROI in 6-12 months is in no way, shape, or form "super conservative." You should reset your expectations. Yes, you can do very well with BRRRR strategy, get all of your money back and then some, but what you're describing is a grand slam. No one hits a grand slam every time they step to the plate. Most people NEVER hit a grand slam.

"I can basically guarantee those profit margins." No, Devon, no you can't. No one can guarantee returns, especially at the level you're suggesting. Wholesaling is not an easy gig. Get a great operation going and sure, you can cherry pick the deals. But this takes a lot of time, effort, and money to get up to scale. Wholesaling is a JOB. You have to constantly feed the beast.

Have you been pre-qualified for a $475k mortgage? I know a thing or two about banks and there aren't very many that would issue a 19-year-old a loan that size unless there are some very unique circumstances.

So that leads to the bigger question of how to access that equity. If you are owner occupying, you may find a bank that's willing to give you a HELOC up to 90-100% of total LTV. You'll have to shop around, underwriting is constantly changing right now.

Lastly, what does your rental analysis of a $750k duplex look like. I cannot imagine any scenario where that cash flows with an 80% LTV.