options for financing renos

[Tootse]

Hi everyone,



I am looking at purchasing an up/down duplex bungalow style for $190000. It needs about $40000 in renos, after which it can rent for $800 down and $1K up. Coming up with the 20% downpayment is going to be a challenge. I hope to use the equity from my current primary residence and borrow the remainder. I am looking for advice on options for financing the renos, especially my challenges with the downpayment. I obviously need to discuss this with my mortgage broker, but thought I'd throw this out to the REIN community to get some advice from those more experianced with this than I.



Thanks!

Tootse

 

[Thomas Beyer]

Cash comes from your own jeans, from the seller, from a lender or from an equity investor (aka JV)



What is the value after it is repaired ? You could re-finance it at 80% then and get most if not more of the invested upgrade money back !

 

[Tootse]

The value after it is repaired would be $250000.

Aha, re-financing to get the money back is something I didn't think of. Thanks Thomas. Does this mean that I get it re-appraised at say $250000, 80% of which is $200000. With the mortgage principle at about $190000, this would mean I could very quickly "pay off" $10000 of upgrade money? I suppose I could even wait a few years and get more money back?

 

[Thomas Beyer]

Perhaps you can find some trades that work for equity to reduce your cash outlay?



If you can buy the house for $1 plus mortgage assumption it may be worth it. But generally, if you buy for $190,000 and spend $40,000 plus time and hassles to upgrade and then it is worth only $250,000 it may be overpriced, or the upgrades need to be less than $40,000 to get to $250,000.

 

[scoopert2000]

The way I have been doing it is to buy with 20% down. Do the renos as needed/as I can pay for them. Painful but keeps my spending tight and prevents "over fixing" things. LOC and visa can take a beating so watch it. Focus on the inside, rent it then worry about the outside. Tenants so far have been happy to put up with some work going on as they are happy to have a landlord that fixes things. (Seems to be a new concept to some of them).

Within a year I can take a dump and turn it around. LOTS OF WORK. but so far I have been able to refinance them, get my money back and sometimes a little extra and end up with nice rental that cash flows.

If its your first project START SMALL. Painting and maybe widows OR a roof. What you think will cost 40 000 will cost 80 000 real quick. Your first one will be a learning experience for sure. Also remember that sometimes you fix things differently for a rental than you would for something your going to sell .



Stewart Cooper

 

[invst4profit]

It doesn't make a lot of financial sense to pay 190, do 40 in reno to rent and have a property which will only then be worth 250.

For an additional 12 down you could buy a property at 250 and be able to rent immediately without the time and labour or potential over runs of a reno property.

Realistically you should not be paying more that 175 with 40 in renos to make the time and effort worth while and that would be in the case of a well seasoned renovator not a first timer.



Your carrying costs and cost over runs, which always occur, will eat up your profits very quickly. In addition a monthly rental income of 1800 on a property of that value is only boarder line positive.

I would strongly advise either finding a better deal of wait till you have more money down for a deposit.

Or find a well priced duplex needing renos that already has tenants and only reno one side at a time (the side you are living in). This way you buy for less down as owner occupied and still have some rental income.

 

[Tootse]

UPDATE:
I bought this property March 2013 for $187,000, did $55,000 in repairs, lived in one of the units until January 2016, rented the other for $900. I've got $242,000 invested in it, and it now rents for $1800/mo total. Expenses, including mortgage principle, have been averaging $1,500/mo. I'd appreciate hearing your brutally honest assessment on whether or not this was a smart assessment. I took heed to a lot of the advice above, knowing I was taking a risk.
My risk tolerance is a little different today as I am looking to purchase a family home. I am considering re-financing the mortgage on this rental property, now appraised by the bank at $270,000, so that I can take out some equity ($12-15,000) for a down-payment, and so that it is no longer CMHC-insured, as I can only have one CMHC-insured property. I can't afford 20% down on the new family home purchase. It would be re-financed such that the mortgage would be $216,000, 3 yr VRM @2.4%. Any thoughts or advice?
Thanks!
Tootse.

 

[Thomas Beyer]

$187,000 + $55,000 in repairs = I've got $242,000 . . now appraised by the bank at $270,000, ... Any thoughts or advice?
Thanks!
Tootse.

I see $28,000 profit here.

Buy some more, as long as they cash flow.

Refi at 75-80% if possible. Or sell, if you need cash for your own (tax free) house which is a priority !