Does the BRRRR method work in the Canadian market?

Question

Hello,

New here and also new to investing and rental properties, and was wondering if the BRRRR method works in the Canadian markets at all?

Matt Geerts · Answer

The short answer is yes.

I have been learning lately that every time I hear no, I just need to keep asking up the chain or somewhere else and I'll find a yes. No is never the end of the story unless you close the book.

The Scotia mobile mortgage advisor that I work with says that people do purchase, repair, refi with her all the time. She'll kick off the process 24 hours after you buy if you know there's value in the property, so there's no "seasoning" required.

Ming Lim · Answer

I can echo what's been said above by both @Luc Boiron and @Taylor Servais . The refi is certainly the area which holds up the BRRR in Canada. We have a much stricter lending market here.

That said, I was speaking about this problem with my mortgage broker and he suggested that I work with him and a lender ahead of doing the BRRR to get an appraised value based on my reno plans. I haven't tried it myself, but I'd go this route prior to starting the reno for my next BRRR.

Luc Boiron · Answer

@Keenan Freker

I don't see why it wouldn't work in Canada. It would likely be more difficult though.

Part of it is that it seems our appraisers work differently here - they're very likely to come in at purchase price if they are appraising for a purchase, but are likely to be more cautious and appraise lower for a refinance where they do not have a sale price to go off of.

Also, speak to a mortgage broker about when you can refinance - lenders won't refinance out more for you to take money out to invest. You might be able to if you are changing lenders and trying to get a better rate. I know there are some reasons you are allowed to refinance and take money out, such as paying off other debt, renovations, etc. It is also possible you will only be about to refinance to 75% LTV.

All that being said, I don't see why you can't BRRRR in Windsor, Toronto or the GTA. The key would be to get a very good deal though - like buying a property for $100k, putting $100k into the reno, and having a property worth $300k. When you get a really good deal, it works.

Taylor Servais · Answer

I've done BRRR in Windsor and now onto my second, which has been a longer renovation time period. Using personal experience (side by side duplex), it is hard to find a good deal since the market is very hot and things sell very quickly.  As @Luc Boiron mentioned above, appraisals come in MUCH lower on the refinance. I had 3 comps of properties sold (Giles/Dougall area for your reference) within 1 KM (all on the same side of the tracks and in the same area) that were listed at a RV ratio <1% and were old inside (older kitchens/bathrooms, as is, etc.). I called several lenders and one was 75% LTV, one was extremely slow so I pulled the application, and another was 80% (who I went with).

The refinanced property had everything practically new (wiring, plumbing, kitchens, bathrooms, decks, etc.) with few items less than 5 years old (roof, siding, furnaces/AC), but the windows were 10 years old. Rents are 1725+ hydro/gas rents (I pay for water and Reliance hot water tanks only). It got refinanced at an RV >1%, which in my opinion doesn't make any sense. Very few smaller sized properties trade at 1% RVs. At the end of the day, my all in costs for the property (renovations, holding, and closing costs) are 15% of the current value, which is well above the 0% goal. However, the cash on cash for the property is now over 20%, which is very tough to find in today's market.

Once I've refinanced, the way I try to view it is by taking the amount I have in the property (ex. 25k) and subtracting closing costs of a few thousand (ex. 5k for simplicity), would I pay a multiple of 5 (20% down) for that property given current condition and rents? The answer is always yes.

Justin H. · Answer

@Ming Lim - very interested in what youre doing to potentially get the lender to give an appraised value based upon your reno plans .... whoa re you using, or can you inbox me?

Keenan Freker · Answer

okay, what does seasoning mean? i am assuming that the house needs to sit for a while with the upgrades done ?

Paul MacInnis · Answer

@Matt Geerts - can you hook me up with your advisor's info!!  I"ve been told seasoning is required!

Greg Robinson · Answer

Have you looked onto using a PPI - Purchase Plus Improvements mortgage?  We have used this method a few times and most A lenders offer it.  Maybe worth a look.

David Leesurier · Answer

Hi Keenan, everything you want to do is possible, I have done it myself, you will need a good mortgage broker or bank to work with you, tell them what your plan is before you start as the financing market has changed, cmhc cost are going up in March, and the already implemented 5% qualification interest rate makes it hard in today's market as mentioned in the previous posts

Does the BRRRR method work in the Canadian market?

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