The Wisdom, Lifestyle, Money, Show
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The Wisdom, Lifestyle, Money, Show
Value Add CMHC MLI-Select Apartment Building Financing Strategy
In this episode, Scott is joined by Jennifer Champion and Christine Traynor to discuss value-add strategies for multi-family apartment buildings. The hosts share their active investing experience and explain how to force appreciation through strategic property improvements and rent optimization.
Key Timestamps: [0:00] Introduction to Value-Add Multi-Family Investing
- Focus on forcing appreciation vs. just cashflow
- Why controlling income and expenses matters in multifamily
- Predictable refinance outcomes
[2:30] 💰 Forcing Appreciation Strategy
- Raising rents to market value
- Controllable income and expense factors
- Difference from single-family appreciation methods
[4:15] 📊 Real World Case Study Example
- $1.5 million purchase price
- $200,000 renovation investment
- $2.1 million stabilized value
- 75% LTV refinance at $1.57 million
- Creating infinite returns with zero capital remaining
[7:00] 🏦 Understanding the Two-Loan Strategy
- Bridge loan benefits (interest-only payments)
- Takeout financing for long-term refinancing
- CMHC standard and MOI select options
- Higher loan-to-value possibilities
[9:30] 🌍 Market Selection Considerations
- Landlord-friendly markets like Alberta
- Challenges with rent-controlled markets
- U.S. market opportunities for this strategy
Key Concepts Covered:
Value-Add Strategy Fundamentals:
- Forcing appreciation through property improvements
- Raising rents to market rates
- Creating predictable refinance scenarios
- Achieving infinite returns through strategic refinancing
Two-Loan Structure: Bridge Loan Phase:
- Interest-only payments during stabilization
- Lower carrying costs during renovation period
- Short-term financing solution
Takeout Financing:
- Long-term conventional or CMHC financing
- 5-year terms available
- Access to created equity
- Higher loan-to-value options
Investment Mathematics: Real Example Breakdown:
- Initial investment: $1.5 million purchase + $200,000 renovations
- Total invested: $1.7 million
- Stabilized value: $2.1 million
- Refinance proceeds: $1.57 million (75% LTV)
- Capital recovered while maintaining ownership
Market Selection Criteria: Ideal Markets:
- Landlord-friendly jurisdictions
- Ability to raise rents to market rates
- Limited rent control restrictions
- Strong rental demand fundamentals
Challenging Markets:
- Heavy rent control regulations
- Limited ability to increase rents
- Restrictive landlord-tenant laws
Strategic Advantages:
- Tax efficiency (appreciation vs. taxable cashflow)
- Predictable returns compared to single-family
- Scalable strategy for portfolio growth
Important Considerations:
- Calculate closing costs for both loan transactions
- Factor in all fees and expenses
- Ensure market fundamentals support strategy
Resources Mentioned:
Important Note: This strategy requires careful market analysis and proper financing structure. Investors should
Welcome back to the Wisdom Lifestyle Money Show. I'm your host, Scott Dillingham. Today we have our next installment of the commercial investing topics that we, we told you we're gonna go over and I'm really excited about today's. I have Jennifer champion and Christine Trainor on with us, and we are going to talk about value add for multi-family apartment buildings and strategies and. How this is a game changing topic. So I'll turn it over to you, Jennifer and Christine. So welcome.
Jennifer Champion:Thanks Scott.
Scott Dillingham:Yeah, you're welcome.
Jennifer Champion:Okay. So one thing that I really wanna touch on, I think that when people go into multifamily, they focus a lot on cashflow. And yes, cashflow is great, but you are also taxed on cashflow. So today we just really wanna talk about forcing appreciation and how you can do that in the multifamily space. So one of the best ways to do that is to be raising rents, to market rents very different than in the single family space. When you are raising your income and lowering your expenses in multifamily, it's all very controllable and you can really predict like what that refinance is going to look like. Whereas in single family, it's really based on your comparables and the houses around you. So a, a really straightforward example is, say you buy a apartment building for $1.5 million. You put $200,000 into renovations, and then you stabilize all the rents in your building to market rents, and your property is now worth $2.1 million. So you go to refinance that property at just 75% loan to value, and your new loan is worth $1.57 million. So with this strategy, you have taken out your original capital and created equity in the property. Of course, you know we can get into other products. Like CMHC standard and MOI select, which allows you to do higher loan to values. But right there you've turned a building. You now own it essentially with $0 out of your pocket and the returns are infinite.
Scott Dillingham:That's awesome. I love it. So. Could you explain, because for the investor who's thinking of this, they might just wanna apply and think that they can get renovations and it's all good to go. And, but there's, there's different steps there. What are the two different types of loans, because we need two loans for this type of product. Ideally. So could you explain what those are for an investor who's listening.
Jennifer Champion:Yeah, so depending on, you know, the strength of the numbers on purchase, you can use a credit union and go 75% loan to value. You know definitely a better strategy is to do what we call a bridge loan. So they're interest only payments. You know, and then that you're using those interest only payments to keep your costs down while you're stabilizing the building. And then we call it, once you go to refinance, it's basically called takeout financing. So this is like your long-term financing, five year term, either conventional or CMHC to access the equity that you've created in that building.
Scott Dillingham:Exactly. Yeah. So Jennifer nailed it guys there. So there, there, there is the two mortgages. So keep that in mind, right, because when you're running your profits, you have to calculate like the fees, the closing costs, all that stuff. And that's gonna happen twice. So great, great strategy and I know Jennifer and Christine, right? Both of you are actively investing in this strategy. So I really like that. Not only are you talking about it today, but it's literally what you're doing. So I think that's super important. So what we're gonna do for anybody who's listening to this that wants more information or love this idea and, and wants to move forward with it, we're gonna have. Jen and Christine's Calendly links into the, into the description there so you can book a call with them and discuss the strategy for your next investment. Did you guys have anything else to add to this strategy or anything else that we should know about?
Christine Traynor:I. The only thing I was gonna add, Scott, is that it's also a piece of it is looking at specific markets where this strategy works really well. So typically that's like where we're seeing a lot of people doing the strategy as landlord friendly markets like Alberta where you can go in and increase those rents. It is a little bit more challenging in other markets where you have a little bit more you know, rent control and that kind of thing. And it's also a great strategy that we're seeing people use in the US as well.
Scott Dillingham:Awesome. Love it. Yeah. Thanks for sharing. So appreciate it guys. I'm definitely looking forward to next week's topic. I, I know it's gonna be an exciting one and we can't wait to share it with everybody here. So thanks so much for joining us. Thanks, Scott.
