Monday, 5 October 2015

Financing Your Renos

A renovation is no different. Whether your project is a "buy-fix and sell", repairing a rental unit or improving your principal residence, there are a few things to consider.

First, you must ask yourself whether injecting any money into the property will actually increase its value. This requires becoming an expert on property values in your neighbourhood through sales comparables. We have found by comparing price per square foot, you can identify a deal very quickly.

House number one is $350,000 and the house size is 1400 square feet. Divide 1400 into $350,000, you get $250 per square foot. We look for properties that are easily "suite-able" where the second unit allows us to buy below the average square foot price. A third example could be a $600,000, 2500 square foot property, renovated with a finished basement and separate entrance. This works out to $240 per square foot. This knowledge allows you understand your projected cash on cash return (how much cash or equity value every dollar you spend puts back in your pocket) and whether even considering the project will be worth it. To gain perspective on properties in your area, it is important to check out other houses in the neighbourhood and understand to what degree people are renovating. If the "fix and flip" model is a little too daunting, a very affordable, slow and steady strategy is to renovate your principal residence for profit. Once the renovation is complete, you have presumably increased the value. The next step is to refinance the property and use the capital to purchase another property and repeat the process.


No comments:

Post a Comment