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CMHC Home Improvement Loan

Steven Gingerich

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I’m going through a purchase right now, $152,000 for an up down duplex. I’m using a strategy I came across in one of Russ Whitney’s books. A home improvement loan.

The IDEA is to buy a house, say $100,000.

-$20,000 down payment

-Apply for a home improvement loan that will be added to your final mortgage once repairs are completed

-Get quotes on work to be done from contractors (high end quotes) and supply them to your mortgage broker.

-Then say the quotes land around $40,000, potentially adding $40-50,000 in after repair value.

-The idea is to then do the majority of the work yourself, say cutting Reno costs to $20,000 from the quoted $40,000.

- In theory you would have added the SAME ARV and potentially take home the same $40,000 Home Improvement Loan, which (being $40,000) should be enough to pay the LOC off that you used for capital for material and labour, as well as to pay yourself back for the down payment of the home.

I’ve taken on the strategy of getting quotes for a few new windows, a new basement kitchen, and expanding the basement washroom, taking out the kitchen wall in the basement for an open concept with the living room, AND adding a 5 foot privacy fence in the back yard as well as adding gravel parking spaces from the back alley.

The idea is gold, but I have a feeling that the Home Improvement Loan may only match what receipts/invoices I have for material bought and labour of the contractors.

The conflict here is that I was under the impression that the Home Improvement Loan was based on the after repair value of the home-purchase price and NOT based on what the repairs cost....

Any knowledge or experience with this strategy would be greatly appreciated.

Located in Northern Alberta,

Steve Gingerich
 
Last edited:

Thomas Beyer

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Many highly hyped strategies work well on one platform: the overhead projector.

Many do not work in the real world.

Where is this house for $100,000 ? On Canada? Or rural TX or MN?

What’s your income so you can qualify for an empty $100,000 plus $80,000 loan? Ideally this is done in cash, from your HELOC on your house. Do you own one?
 

Owenb

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Sep 25, 2015
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I also believe most lenders or CMHC has limit (I think 10-15%) of what they will allow for the improvements to be added to the mortgage. I think we did one at 40%, but I dont believe they will allow it to go that high anymore.


Sent from my iPad using myREINspace
 

Michel Lafleur

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Apr 30, 2015
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I know those as "cost plus improvements" mortgages. The pre-approval is usually based on reasonable quotes, but ultimately the amount added to your mortgage is the same as what your receipts show. They usually limit the repairs to a 6 month window which usually deters all the DIY guys.
Otherwise this would be a classic BRRR where you hope the appraisal & value add outpace your renovation costs.
 

Matt Crowley

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If you want to be merchant, be merchant. Add the improvements and sell. Don't refi and hold.

The bank is not going to want to do such small deals and will be wise to what you are doing and will not pay you for your work.

If you want to do a reno and refi strategy then it is easiest to use a LOC to fund the repairs for such a small amount then get an appraisal and refi out the proceeds. But if your goal is to create a business out of this, then just sell the place and move on. Not every piece of real estate is worth holding.
 
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