How to scale with real estate investing in Calgary | Financial Strategy Deep Dive
Note that the information provided herein should not be considered financial advice. I am not an accountant, and recommend seeking professional guidance specific to your personal circumstances.
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When I first started out in Calgary real estate investing, I heard may people say that “you can’t invest here”, “it’s too expensive”, and “it’s not like the US here”. The more that I’ve learned and practiced and heard from people actually investing, I’ve found that it could not be further from the truth. I have now scaled my real estate portfolio to 5 doors, and have found that although it is not easy, the process is actually simple and completely possible for anyone to attain.
The “secret”, if that is what it could be called, is that you can’t just buy any single family home and expect it to cash flow positive. The best way for a new investor to scale their real estate portfolio in Calgary is through BRRRR (Buy, Renovate, Rent, Refinance, Repeat) investing. The BRRRR strategy involves forcing appreciation to your property through strategic renovations and improvements, including duplex conversions, backyard suites, development of unused spaces, and cosmetic renovations .
The catch is, you have to find creative ways to finance these investment strategies, and I’ll be the first to say that it isn’t easy - but, anyone can do it. No rich uncles required. Today I’ll share with you the specific financial strategies that have worked for me to get my first 5 doors, and absolutely work in the Calgary market.
My 1st door: house hacking with a legal basement apartment
In 2016, I had found myself with $40,000 in savings and I was in the position to purchase a house. Basement apartments (also known as “secondary suites” in Calgary) were gaining popularity at the time, and I knew that I wanted to make one happen. I previously wrote a deep dive on that property here. I found a suitable property - a bi-level split single family home. These properties are excellent for basement apartments as the lower floor windows are large, and the slope of the property often makes it seem as though you are above ground level. I found one in a great neighbourhood, and negotiated the purchase.
Financial Strategy 1: Insured Mortgage (CMHC in Canada) + Purchase Plus Improvements Mortgage
CMHC offers insured low down payment options, and even allows cash-back for direct property improvements.
The purchase price was $530,000. I put $30,000 down on a CMHC insured mortgage. CHMC insurance allows you to place as little as 5% down on the property, with an insurance fee added to the top of your mortgage. The insurance fee in this case was around $8,000. In addition, I negotiated a “purchase plus improvements” mortgage, where the lender will provide cash-back after closing for specific renovations to be performed on the property immediately. In my case, I submitted a request to add a “kitchenette” for $10,222 after going down to the Lowe’s and having a quote drawn up. That’s $10k right back to put towards the suite!
This strategy highlights how you can (still today) get in to a property for very little down. Including the cash-back, I was in for a hair under $20,000.
A quick note on leverage: leverage is one of the major reasons I love real estate investing. There are many benefits, however it does come with risk. In my opinion, attaining a property with such small equity invested does not protect you from market volatility very well. If you do go ahead with a low money down option, plan to hold the property long enough to build up some equity, or as I did, immediately try to invest additional money or sweat equity to force appreciation in the property. I like using low money down funding for the acquisition, however almost always plan to shift to traditional lending in the long term with at least 80% LTV on the note.
Financial Strategy 2: Line of Credit + Private Lending (family)
When I started, I had very little idea in understanding renovation costs, never mind the costs of creating a full legalized basement apartment in my Calgary home! I had estimated $40,000 at the outset, and I was not remotely close. The total cost ended up at $90,000. So, how did I finance the $70,000 shortfall?
The first option I took was to utilize an unsecured Line of Credit for $30,000 from a traditional bank. This is a loan type that is not secured against an asset. This is great as it will not impact your Loan to Value figures on the lending of your property, as you are qualified based on your income, credit score, and ability to pay it back alone.
To get me over the line, I asked for and received private money loans from two members of my family totaling $45,000. I did not take this lightly - it was difficult to ask and I was so fortunate to have family members that supported and believed in me and what I was doing. I paid this back over the coming months with the extra income I was receiving from rent. With that, I had enough to get the rehab project over the line and could finally bring in my first tenant!
Financial Strategy 3: Wait and let time help!
There’s a saying in real estate investing that “time in the market is more important than timing the market”, and it couldn’t be more true. I had the property appraised following the completion of the rehab, however it came in too low for me to pull any equity out at the time (appraisal at $608,000). This is the biggest fear of many BRRRR investors. Not always being able to refinance out is one of the risks with a low money down deal, however if you simply wait you will usually win in the end. The combination of renters paying down your equity and market appreciation will so often have you looking like a genius a few years down the road.
So I waited! The renters helped to pay down the principal, and the market eventually went up allowing me to scale further!
Door #2 - force appreciation and move out of the house-hack
It took me 2 years to stabilize and unlock the equity built up in the second unit. Although I had an extremely trouble-free tenant, I did have private loans to pay back which took some time. At the time, my partner and I decided to move in together. Since this property was perfectly set up as a rental, I left the first home and rented out both the upstairs and downstairs unit. Before I did, I performed some small renovations to ensure the unit was ready for its future tenants.
Financial Strategy 4: Savings and Line of Credit
I tallied up about $20,000 in renovations, which would help with the future valuation of the property. In this case, I had a combination of space on my existing line of credit and some savings to pay for these improvements. That was it - I packed up and moved out. Just like that I had doubled my real estate portfolio!
Financial Strategy 5: Refinance with a traditional A-Lender mortgage
Upon moving out, I had finally built enough equity that I could complete a refinance the property. The appraisal came in at $600,000 (yes, less than the previous appraisal even after additional improvements), which allowed me to take a mortgage of $480,000. After after paying the previous mortgage, I was left with a cash-out of $28,000 to put towards the remainder of the line of credit balance and invest in our future projects.
I learned very clearly at this stage that time really does heal everything in real estate. Even though I got into the property with only 5% down, I forced appreciation and then allowed time to pass such that the mortgage could be paid down sufficiently.
Doors 3 and 4: BRRRR - Repeat!
The last “R” of BRRRR stands for Repeat, and although it is the least talked about in terms of specific strategies, it is the key to scaling in real estate investing. Repeating the process introduces new financing challenges as you look to take on additional debt and move away from the “typical” client that most banks work with.
In our case, my partner and I decided to repeat our success of creating a basement apartment suite, and began planning and construction.
Financial Strategy 6: HELOC and savings
On this property, my partner had already built up enough equity in her home to leverage a secured home equity line of credit (HELOC) for the renovation costs. We also decided to hire a general contractor for this project, which significantly sped up the construction time and left us with a very high quality product. We worked with our mortgage broker to help execute this strategy.
Financial Strategy 7: Cash-Out Refinance
After completion, we were able to refinance the home and pay out the HELOC. The biggest challenge at the time was that single family homes with legalized basement apartments were still not mainstream. It was challenging to find close comparables, making the appraisal process a bit challenging. In the end, we did receive an appraisal that made it possible to get our money back.
Door #5: Another BRRRR purchase as a short term rental
That brings us to our 5th unit. For this one, we have shifted our strategy to short term rentals and have invested in the nearby vacation community of Invermere. At the time of writing, we have possession of the property and are now in the planning phase of our renovation. Similar to before, we plan to renovate to force appreciation and then refinance as we exit to operations. With each new unit, we have tried to use everything we’ve learned and then grow
Financial Strategy 8: Cash-Out Refinance
To fund the purchase of the new property, we were able to take advantage of market appreciation and refinance our other properties. This left us with a healthy fund of over $200k for the down payment and part of the renovation expenses.
Financial Strategy 9: Insured Mortgage (CMHC in Canada)
Once again, we opted to utilize an insured mortgage for the purchase of our Invermere property. We purchased a dated property in a desirable community, and found that we could force appreciation significantly. We needed to retain as much of the funds as possible for a more substantial renovation and to bring it in-line with other high end homes. The purchase was $787,000, which allowed us to get in with a down payment of about $65,000.
Financial Strategy 10: Cash + Line of Credit
To meet the level of finish that we are targeting, we are expecting the renovation to land at around $200-250,000. We’ll use a combination of the cash left from the refinances as well as lines of credit, or private money loans to fund the balance.
After renovation, any guess as to what we’ll do next? Yes, we’ll continue with our BRRRR strategy and refinance and keep doing it again! We have fallen in love with the process, and the financial tools are absolutely key in order to scale our portfolio.
It’s all really simple, but is hard work
The lesson learned through all of this is that the tools and strategies are actually all pretty simple. Once you figure them out, you can repeat them over and over to help you scale. However, simple does not equal easy! What I haven’t said in all of this is the many discussions with banks, brokers and other lenders to make these things happen. They won’t all approve every single request, and you might have to go to a plan B if plan A doesn’t quite work out.
Also, I am certain that there are faster ways out there to help you scale. I do know that these have worked for me, and have helped us get to 5 doors. What about you? Where are you in your investment journey? What tools have helped you scale, or, what tools haven’t worked at all? I’d love to hear in the comments!