Advice on Financing

[czapskibusinessgroup]

Hello everyone, I've spoke with a reputable mortgage broker who has offered me an option for financing. He recommends doing a 3 or 5 year fixed rate with a PPI to convert the either detached or semi detached I will be looking for to convert to a legal duplex. I plan to live in one unit as I need a home and then down the road, hopefully sooner than later; refinance the property and move on to another property to do the same with 5% down as my next primary residence. I have experience in trades and will be doing a fair amount of work on my own to save some initial costs and create sweat equity.

I will have 5% down as a first time home buyer and have a co-signer (father) as well.

I want to scale to 10 properties in the most efficient manner.

Here are a few of my questions:

Is a fixed term even at 3 years (recommended option due to having the added CMHC on the loan and not possibly being able to get as much forced appreciation and equity fast) my best option or would a variable be a better option with wanted to refinance after renovations with a PPI program?

How long do you have to complete the renovations with a PPI program?

Is it possible to setup a HELOC or what I think is called a reversible mortgage before the end of that term to have access to whatever equity and appreciation is built prior to the end of a fixed term mortgage?

My main concern is tying up all the money for that 3-5 year period.

I do have a full-time career and part time job with money coming in that will cover my mortgage costs and some renovation costs. The renovation costs will either be a loan or creditline initially to stay on whatever the timeline is that's required for a PPI program.

I'd love to hear from this experienced forum.


Thank you,


Kyle

 

[Thomas Beyer]

HELOC requires 25%+ equity in a home.

3 or 5 year fixed mortgages essentially the same rates these days so pick one that suits your holding period.

Variable rate has far lower discharge penalty usually, max 3 month but not necessarily cheaper.


Thomas Beyer
Asset Manager, Investor, Author, Father, Mentor www.prestprop.com

==> Check out our latest RRSP or TFSA eligible two year investment with a 40%+ yield target at www.investoliver.ca

 

[Matt Crowley]

Hi Kyle,

Try to get 20% down. CMHC will charge fees that will amount to 4% of the mortgage amount (CMHC). So your 5% equity down becomes 1%. The amount you pay for capital should be less than this. Deeply cuts into your profit margin.

Mortgage flexibility is the most important thing you should consider. Variable is probably going to be a better option.

It sounds like your business plan needs a bit more vetting. Between your full time job and having a part time job, I'm not sure what timelines you are thinking you will be able to renovate this property within. Getting to 10 properties seems pretty ambitious.

For merchant flips like this, you want to be in and out as efficiently as possible. If you can't execute quickly personally, then look to trades that can help get you there. If you just hire a GC, your profit will be 0. If you use CMHC financing and a GC you will lose money, most likely.

 

[czapskibusinessgroup]

Hi Kyle,

Try to get 20% down. CMHC will charge fees that will amount to 4% of the mortgage amount (CMHC). So your 5% equity down becomes 1%. The amount you pay for capital should be less than this. Deeply cuts into your profit margin.

Mortgage flexibility is the most important thing you should consider. Variable is probably going to be a better option.

It sounds like your business plan needs a bit more vetting. Between your full time job and having a part time job, I'm not sure what timelines you are thinking you will be able to renovate this property within. Getting to 10 properties seems pretty ambitious.

For merchant flips like this, you want to be in and out as efficiently as possible. If you can't execute quickly personally, then look to trades that can help get you there. If you just hire a GC, your profit will be 0. If you use CMHC financing and a GC you will lose money, most likely.

I don't have an extra 60 000 for a down payment so 20% isn't an option. I also am not flipping. I am updating and continuing to buy and hold. I will be doing the GC at and finish work as that's my experience and to save costs.

I'm not in a rush per se but want to scale efficiently.

Thanks for the variable/fixed advice though. Appreciate it.

Sent from my ONEPLUS A3000 using myREINspace mobile app

 

[Thomas Beyer]

I don't have an extra 60 000 for a down payment so 20% isn't an option. I also am not flipping. I am updating and continuing to buy and hold. I will be doing the GC at and finish work as that's my experience and to save costs.

I'm not in a rush per se but want to scale efficiently.

Thanks for the variable/fixed advice though. Appreciate it.

Sent from my ONEPLUS A3000 using myREINspace mobile app

Then buy with 5% down, fix it up in cash and live there for a while. LOC only an option if you got 25%+ equity in a house. Since CMHC fees are high it makes sense only for a long term hold.

Flip and then refi 3-6 months later assumes min 20% down and/or a JV or equity partner to bridge it. As such, do 2-3 by yourself (or bank of dad) to prove you can actually execute and then invite investors / JV partners to come up with the cash and/or mortgage qualification.

Thomas Beyer
Asset Manager, Investor, Author, Father, Mentor www.prestprop.com

==> Check out our latest RRSP or TFSA eligible two year investment with a 40%+ yield target at www.investoliver.ca