Best Real Estate Investment Strategy in Canada

Net Worth Growth Hacking 101

The  real estate investment strategy I am about to propose is not a secret, and has been around for a long time.

It is one that follows a similar business model of multi-billion dollar private equity firms.

Real estate still accounts as the largest single investment for most Canadians as it's tied to their principle residence.

This is where most Canadians constrain their view of real estate.

The majority of the population seems to view it only in terms of where they reside.

That is NOT a investment strategy that is effective or scalable by any means.

90% of millionaires attain that status through real estate; one cannot risk their financial independence by constraining themselves to preconceived notions.

The proposed strategy: BRRRR

Buy, Renovate, Rent, Refinance, & Repeat.

Real Estate unlike many other financial assets allows for significant leverage at relatively low interest rates in the form of mortgage loans, and home equity lines of credit or HELOCs for short.

The BRRR method exploits the financing game by leveraging low interest rates, under-priced assets and appraised value.

BUY

We first look for a potential real estate acquisition; one that will yield disproportional annual rental income relative to its current market value, this can be done by calculating something called a "capital rate".

Usually these discounted properties have been through a state of negligence, or have owners whom are going through special circumstances and would like to divest as soon as possible. Either way; they offer an opportunity for an enterprising investor like yourself.

Significant due diligence is required before choosing a potential target; a whole book can be written on this step alone, however, to expedite the process I would recommend approaching multiple real estate agents and appraisers who are experienced in the neighbourhood.

This will allow you to formulate your own opinions and facts concerning each potential target.

I would recommend making a shortlist of potential acquisitions; and order them in terms of potential yield. I will go over potential yield in a future post; but the quick idea is to order the properties in terms of post renovations and licensing (if any) cash flows.

After choosing your acquisition target and negotiating the terms of the deal, you get to the fun part;  financing the acquisition.

When financing the acquisition you are aiming for two things:

1. Minimizing interest and principal payments on the mortgage.
2. Minimizing the total upfront capital investment, or down-payment required.

These two are influx, a larger down-payment usually lowers the interest rate on the mortgage.

I will discuss how to get the best possible terms for financing the acquisition in a further post.

Congratulations you now have a property to your name!

RENOVATE

This step requires creativity and good taste.

You look for all the potential small and easy to do aesthetics details that will significantly affect the appraised value of the property. This can range anywhere from repainting, to new flooring, new appliances, new light fixtures, and even intangible things like licensing for separate units.

The mentality here is:
"will this addition provide a disproportional addition to the value of my property?"

A great place to begin is this list curated by Sheiresa Ngo of cheatsheet.com

RENT

The most crucial and often overlooked step in the whole BRRRR strategy; the step that can make or break the whole system; the assets rental.

Due to the nature of landlord-tenants laws in Canada, the system is lopsidedly in favour of the tenant; therefore, you as an investor cannot afford entering a contract with a tenant of bad nature.

You must carefully assess each tenant in terms of solvency and temperament.

You must work to build good long-lasting professional relations with your tenants.

If this seems like a burdensome process, you can always outsource the tenant screening to a credible property management company.

REFINANCE

Now that you have renovated your property and rented out to tenants, it is time to refinance.

Assuming that you have purchased the property at a discounted price relative to its peers in the area and that all the additions you have made have added disproportionate value to the property.

You should be able to refinance the property at an appraised value significantly higher than the price you paid to acquire it.

The aim of the refinancing is to be able to pull out as much of the initial cash invested in the property or down-payment plus renovations as possible.

REPEAT

Repeat the process with cash obtained from refinancing!

This strategy is one of the most scalable methods of real estate investing, making it, in my opinion, one of the best real estate investing strategy in Canada.

If done correctly the BRRR method will yield exponential growth to your net worth.

So what are you waiting for? get out there and BRRR!

Don't know how to look for appropriate properties to acquire?

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I look forward to seeing you succeed.