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Investment – duplex conversion BRRR

Buy, Fix, Refinance, Repeat

Project Info

Client Chris
Skills Financial System
Website Kitchener

Project Description

Chris was looking to purchase his first rental property but was interested in using the BRRR strategy (Buy, Renovate, Refinance, Repeat) to add a second suite to the basement. He wanted to refinance quickly after the renovations were complete to pull out his renovation costs and as much of the original down payment as possible.

Chris was pre-qualified for not only the purchase but also the refinance; it’s vitally important for the mortgage advisor to ensure the refinance with new income and a higher mortgage amount is possible. After working with a specialized Realtor to find the right property, Chris purchased a worn-out looking bungalow and had a contractor team add the second suite and perform cosmetic upgrades to the main floor unit.

Since we were buying and renovating a vacant rental, we used an alternative lender with an open term to allow for more flexible qualifying and no penalties for breaking the mortgage to refinance. Chris accessed his line of credit, savings and contractor credit to finance the project.

Here are Chris’ numbers:

Purchase price: $520,000
Down payment: $104,000
Temporary mortgage: $416,000
Closing costs: $8,500
Financing costs: $7,300
Renovation costs: $93,000
Funds needed: $212,800 (line of credit, savings and credit)

Completed Project:

After renovation value: $665,000 (independently appraised)
New mortgage: $532,000 (pays out $416,000 temporary mortgage leaving $116,000 to cover reno/purchase costs)
Final costs to project: $96,800 ($212,800 total cost minus $116,000 from refinance)

 

Chris now owns a renovated duplex worth $665,000 providing a monthly rental income of $3,325 with a final investment of $96,800. To purchase the completed duplex with 20% down, his investment would have had to be $140,000 after closing costs.

When factoring in Chris’ $485 positive monthly cashflow, a conservative appreciation of 5% for Kitchener and around $1,000 in mortgage principal pay down, the first year return on Chris’ $96,800 investment is 52.76%.