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 told you we're going to go over and I'm really excited about today's. I have Jennifer Champion and Christine Trainer on with us and we are going to talk about value add for multifamily apartment buildings and strategies and how this is a game changing topic. I'll turn it over to you, Jennifer and Christine.
Scott Dillingham:So welcome.
Jennifer Champion:Thanks, Scott.
Scott Dillingham:Yeah, you're welcome.
Jennifer Champion:So one thing that I really want to touch on, I think that when people go into multifamily, they focus a lot on cash flow. And yes, cash flow is great, but you are also taxed on cash flow. So today, we just really want to 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 a single family space when you are raising your income and lowering your expenses in multifamily.
Jennifer Champion: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 $1,500,000, 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 $2,100,000. So you go to refinance that property at just 75% loan to value and your new loan is worth $1,570,000. So with this strategy, you have taken out your original capital and created equity in the property.
Jennifer Champion: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 to 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 want to 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 products ideally. 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.
Jennifer Champion: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 the guides there. So there is the two mortgages. So keep that in mind, right?
Scott Dillingham:Because when you're running your profits, you have to calculate like the fees, the closing costs, all that stuff, and that's going to 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.
Scott Dillingham:So I think that's super important. So what we're going to do for anybody who's listening to this that wants more information or love this idea and wants to move forward with it, we're going to have Jen and Christine's Calendly links 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:The only thing I was going to 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 strategies, landlord friendly markets like Alberta, where you can go in and increase those rents. 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.
Scott Dillingham:I'm definitely looking forward to next week's topic. I know it's going to be an exciting one and we can't wait to share it with everybody here. So thanks so much for joining us.
Christine Traynor:Thanks, Scott.