How to Kick-start your BRRRR real estate investment strategy in Canada

Looking to kick-start your BRRRR real estate investment strategy in Canada? Look no further than owner-occupied properties! 

Are you eager to join the world of real estate investing, but as a first-time investor feeling confused about how to get started? Look no further, because I've written this piece specifically to help aspiring first-time buy-renovate-hold investors like you.

You may have heard the real estate internet and TV training gurus talk about the importance of utilizing other people's money (OPM), and they're not wrong. However, this is not a starter-strategy and gaining access to OPM takes time and requires deliberate steps. While there is undoubtedly money "out there" waiting to be tapped into, the key to attracting that money and being taken seriously is to first establish a proven track record of successfully finding, purchasing, and renovating quality rental properties with good cash-flow, and that takes time. Once you have a track record, attracting OPM for down payment or renovation expenses (whether from friends and family or joint venture partners) becomes possible.

But what if you lack the experience to attract these joint venture "money" partners? Don't worry, the strategy outlined next (call it a BRRRR House-Hacking Blend) is designed to help you gain that all-important first experience and dovetails nicely with the mortgage financing options that ARE available to you at this early stage of your real estate investing career. Plus, you don't have to share the profits with partners or the CRA or pay crazy interest rates!

You can do your own research on the BRRRR method, but  - as a recap - it stands for "buy, renovate, rent, refinance, and repeat” and it is a popular investor tactic to build a portfolio of revenue properties when you are short on money.

BRRRR House-Hacking Blend

Here's how it could work for newbies: 

1. Buy and move into a home with great potential but perhaps in need of some upgrades or with secondary-suite potential. With insured-lending (CMHC for example), you can make this happen with as little as 5% down payment. When combined with a Purchase + Improvements loan program, you can also borrow up to an additional 20% of the purchase price for pre-agreed improvements (oac). These funds (up to $100K max.) are rebated after the renos are completed (you have up to 270 days), not in advance, so keep that in mind. "Sweat Equity" is the term used when homeowners supply the labour and mental resources, and is a great way to increase the value of your home. This property will become your first rental in the future, so it's important to choose the property and renovations wisely.
2. Over the course of a year or so, Renovate the property using a combination of purchase+improvements and cash-on-hand. Remember to maintain your full-time job for income stability and future mortgage eligibility.
3. As you prepare to Rent out the property, start the process all over again (Repeat) by searching for your next owner-occupied property. The best part? You can still purchase again with as little as 5% down, which is not just for first time buyers (myth-busted).
4. At the point of property #2 purchase, an appraisal is necessary for property #1. This will determine both its potential rental income (used to offset your mortgage and tax payments) and its current market value for tax purposes. It's worth noting that any property value gained up to this point is capital-gains-free in Canada, thanks to the property being your principal residence, but that tax-free status ends when you move out and it becomes a rental, hence you have to peg the value at this point. 
5. At then end of the first 5-year mortgage term on property #1, it may be possible to  Refinance. By this point, the mortgage balance will have decreased, perhaps by 10% of the original property price. Plus, there's a chance the property market values and your renovations will have added value. Keep in mind that cash-out refinances require you to maintain 20% equity in the property, so if you have, say, 30% equity, you can extract 10% for other projects. We highly recommend RELOCs for our clients on each purchase, as they offer an easier way to access future equity, once it exists.
6. You can probably Repeat this low-down, owner-occupied, tax-free capital gain tactic 3 or 4 times over a 5+ year period before the CRA and lenders start to raise their eyebrows.

There you have it - in no time at all you'll have a portfolio of income-producing properties and growing net worth. IMO, the above strategy (I call it a "house hacking BRRRR blend") is the easiest path for aspiring real estate investors to get on to the property ladder and start building your rental property empire. It is also recognizes the time it takes to get the required renovation experience to take on more complex projects in the future, to become a seasoned landlord, and to get to meet potential money partners. Learn real estate math and terms too (ROI, burn-rate, cash-on-cash returns, etc.) as fools with their money are soon parted (as the saying goes), and money partners don't like that!

Good luck with your journey. If you'd like to learn about our pre-approval process and potentially map out a path forward, please reach out. 

If you want to do more research, here are some other links to explore plus a house-hack success story.