Aspiring real estate investor in ON, Canada

[Chase Jipson]

My partner and I are in the middle of saving for our first property. I've heard and read lots about the classic BRRR real estate investing method. I'm going to outline my plan, or what I think will happen, and as an amateur on this topic, I want to know where I'm wrong/could use advice.

Our combined income is in the $90k range. We plan to buy in the $300k - $350k range, if approved of course, but in this example we will use $300k. Current plan is to put down ~$25k (first time home buyers). Tad bit of a curveball here, we will be living in the home while renovating - we are contractors with the tools and skills to redo the home, excluding (if) the roof needs replacing. We are looking for 3 bedroom homes, so we will have one tenant filled room to knock some cash off the mortgage payments, with the possibility of adding a room to rent. Once renovations are complete (cost of material only), we will have the home appraised. This is where I get a bit lost... when beginning the refi process, how much will the bank give you? Does it matter how much equity you currently have? What are the factors? Does the refi amount simply get added to your mortgage? For now (could be totally off) let’s say the bank gives us enough for a down payment on another home. We buy the home, live in it while doing the Reno, and continue repeating this process, all while renting out the previously reno’d home.

Please keep in mind I have never done this before, only been reading about it, listening to podcasts, etc. Poke holes in my plan, tell me if I’m completely off the mark.  

[Huong Luu]

@Chase Jipson Welcome to BP. To answer you questions, I am going to include them here:

Current plan is to put down ~$25k (first time home buyers). See if you and your partner can maximize on the RRSP first time home buyers. Since you are currently saving, it sounds like you have time. If you max on your RRSP, you will be able to recognize a tax deduction.  

Tad bit of a curveball here, we will be living in the home while renovating - Many investors and 1st time home buyers do this. This is not a curveball.

when beginning the refi process, how much will the bank give you? The banks will use their own appraisers and usually will come in under value as this is to protect them. The banks will usually lend you upto 85% of the appraised value (depending on your debt load). If you plan to refi within a few months, then you want to get a variable-open mortgage as some banks will charge you to break a fixed mortgage when you refi. 

Does it matter how much equity you currently have? The more equity you have, the more funds you will be able to access.

What are the factors? Does the refi amount simply get added to your mortgage? It can be. Depends on the bank. They might just offer you a HELOC for the increase. 

For now (could be totally off) let’s say the bank gives us enough for a down payment on another home. That is great. You still need to quality for a mortgage (on the other home). Your 1st property will now show as debt on your balance sheet. Some banks will use 50% of rental income, some use 0%. 

We buy the home, live in it while doing the Reno, and continue repeating this process, all while renting out the previously reno’d home. You will have to weigh out the pro and con. If you buy the place as a prim residency, you may be able to use the 5% downpayment over and over, but then the cost of buying and renos will not be a tax deduction. When you buy an investment property, all the cost and interest associated with that purchase is a tax deduction. 

I would suggest you talk to an accountant about this, and start looking for a mortgage agent as once you get 4 doors, banks will not lend to you anymore.