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How To Finance A House Flip In Canada - YouTube
Channel: Nolan Matthias
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- Hey welcome back, it's Nolan Matthias,
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and today we're discussing how to finance
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a house flip in Canada.
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And we found four great ways to do this
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and four great strategies that we think
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pretty much anyone can implement.
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But before we get into
it, do me that favor,
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hit that subscribe button,
hit that notification bell,
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and hit the like button
so more people like you
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can see this video.
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Okay, so let's get into it.
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House flipping and how to
finance a house flip in Canada.
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We found four great
strategies all above board,
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nothing in the gray area,
nothing that would get you
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in any sort of trouble, because
there's a lot of information
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out there that can get you into trouble.
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But we found four above board perfect ways
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to finance a house flip
that pretty much anybody
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with a little bit of cash and
a little bit of credit can do.
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So let's get into it and
talk about the four ways
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that we've discovered and
the four ways that we suggest
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somebody might go about
financing their house flip.
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Okay, so option number
one, and we think this
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is the most flexible of all the options
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is to get a line of credit
on an existing home.
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So obviously you need
to have equity in a home
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in order to be able to do this,
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and there's a couple of
things you're gonna need
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to be careful about when you
go about using this strategy.
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But again, this is the
most flexible of all
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the financing options that
we're going to go into,
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and it can also be used in conjunction
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with a couple of the others.
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So in order to get a line
of credit on your property,
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basically what you do is
you go into your broker
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or your bank and you say hey,
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I wanna get a line of
credit and here is what
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I'm gonna use it for.
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And they will allow you typically
to take a line of credit
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out for up to 65% of the
value of your property.
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Now in conjunction with
any other mortgages
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that you have, you'll be able to go up
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to 80% of the value of the property
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as far as how much
you'll be able to borrow.
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And then you can basically
take your line of credit
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and use that to fund your house flips.
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Now one of the products
that we really like
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is the Scotia Step product.
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Because what it does is
it allows us to have both
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a mortgage and a line of
credit on our property,
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but it also allows us that
as we pay off our mortgage,
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to get more and more of a
line of credit available.
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So we use that personally to help fund
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some of our flip projects.
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Now a couple of things
you need to know about
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using a line of credit for a flip is one,
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if you're using it for other purposes,
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you need to be able to separate out
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clearly for Revenue
Canada what's being used
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for investment purposes and what isn't.
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And secondly you need to understand
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that if you're using a line of credit
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to fund a flip, you're putting the home
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that you live in at risk.
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So if something goes wrong in your flip,
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you're losing money not only on the flip,
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but potentially losing
money on the property
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that you already paid down
and that you already own.
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So it's something to be aware of,
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and you want to make
sure that you have lots
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of backup strategies and
lots of ways out of your flip
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if you're gonna go down the road of using
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an existing property to fund a flip.
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Now option number two for financing a flip
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is to gt an open mortgage from the bank
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in order to fund the
purchase of the property
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that you're buying.
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Now obviously in this
case you need to have
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a 20% down payment
because you're purchasing
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a payment for investment purchases.
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You also need to be able to
qualify for that property
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and any other properties that you may own.
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Now in addition to the 20%
you'll need for the down payment
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you're also gonna need
the funds available to you
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to actually do the renovation.
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Now this can either be
cash or you can go back
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to our original strategy which
is using a line of credit,
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and use your line of credit to fund both
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the 20% down payment,
because that's allowed,
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and also the renovation costs.
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So the line of credit in
conjunction with an open mortgage
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on the property you're
purchasing can be a really
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good strategy in order
to flip the property.
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Now one thing you need to
consider is that when you go
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into your bank and you say
I want an open mortgage
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on this property, be clear and honest
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about what you're doing.
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Because what banks don't
like is when somebody asks
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for like a five year open mortgage
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and then they pay it off in six months
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and the bank goes oh, we made
no profits on that property.
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So you wanna be clear
in what you're doing.
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You probably wanna take a six month
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or one year open.
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You're probably gonna pay a little bit
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higher interest rates, it's
probably gonna be around
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6% in order to get funds
on an open mortgage.
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The reason why is because
there's no penalty.
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But that's the great thing about using
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an open mortgage strategy
is you aren't going
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to have a penalty on the funds
when you go to pay it out
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and sell the property to somebody else.
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Now the third way to finance a flip
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is through a private lender,
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and we love this strategy
because what it allows
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you to do is purchase a
property with as little
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as 10,000 dollars down payment.
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Now how do they get around
the 20% down payment
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minimum required in Canada?
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Well the way they do that is by lending
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on the as improved value instead
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of on the value that you're
purchasing the property for.
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So again in this scenario
you need to have the funds
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available to actually do the renovation,
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but the fact that you only
needed 10,000 dollars down
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opens up a lot of free cash flow.
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Which is one of the major
advantages to this product,
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is you can do more
properties and more flips
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and you can do them without risking
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as much of your own money,
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which makes it a really good product.
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Now one thing to note is the
interest rates are higher,
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13 to 15%.
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Obviously you're putting less money down
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so the risk is higher for that lender,
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but it ends up being a really good way
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to have more cash flow
available to you if you need it.
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The other great thing about
having a private lender
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who does this product available to you
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is that they go into the flip
essentially as an advisor.
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They go through, the run the numbers,
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they do the appraisals, they make sure
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that the purchase price you're paying
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plus the renovations is going to coincide
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to a value that actually
creates a profit for you.
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And in this way they become
an invaluable partner,
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which makes the added cost
of 13 to 15% interest rate
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more than worth it.
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The other thing you
need to consider as well
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is if you're paying those
higher interest rates,
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you're going to be incentivized
to get the property
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flipped faster, and
ultimately, when you look at it
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from a three to five month window,
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the actual interest
costs aren't that much.
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So again, private lenders
are a great option
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if you want to have more cash available
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to do multiple flips at any given time.
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Or if you just don't have
enough cash available
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to put 20% down and
also do the renovations.
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Okay, in our fourth and
final way to finance
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a house flip is by
bringing in an investor.
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Now this can be a silent investor,
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it can be an active investor,
it's totally up to you.
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The great thing about using an investor
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is that any deal you can
conceive becomes a possibility
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as long as you can get
somebody else to agree on it.
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And you can do things like
you can go into a 50/50
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partnership where you split
the profits at the end,
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they provide the
financing, you do the work.
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Or you can go 70/30
depending on whether or not
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you can negotiate that with them.
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Or you can do things like pay them
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a fixed interest rate.
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Maybe you don't wanna pay 13-15%,
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you wanna pay a slightly
lower interest rate,
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but you still wanna have
the flexibility of using
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more private funds.
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Well this is a great way to do that.
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The downside of obviously
having an investor,
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having somebody who's a
partner in your mortgage
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is you have to deal with a partner
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which can sometimes be difficult,
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especially if you have different ideas
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on how you wanna do things.
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But it can also be
invaluable if you've got
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an experienced investor who can help you
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through the process of figuring out
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what the right next steps are
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and how to make the investment profitable.
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So those are four ways to finance a flip.
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I hope you found this video
useful, and if you did,
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please hit that subscribe button
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and the notification bell.
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We'll provide more and
more tips on flipping
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and real estate investing as time goes on.
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And if you wouldn't mind,
please do me that favor,
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hit that like button so more people
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like you can see this video.
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And we'll see you on the
very next one, cheers.
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