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