5 ways to finance your renovations

5 ways to finance renovations in Quebec in 2022

The more time we all spend at home, the more we’re drawn to the idea of doing major home renovations. In the current circumstances, adding a room for a home office, revamping the interior design or redoing the backyard (to spend holidays there) is not just a luxury but a must! Renovating can also help take advantage of the favourable conditions in the real estate market since strategic improvements can considerably increase your property’s resale value.

And, of course, sometimes there’s no other option when wear and tear, or just bad luck, come into play. Real estate is an important asset that’s relatively low risk but that requires a baseline of maintenance and management.

Drawing from your savings and emergency fund to finance renovations 

It’s generally recommended to have an emergency fund that could cover at least three months of current expenditures. While it’s preferable for this sum to be gaining interest, it should do that in a way that keeps it liquid, so it’s quickly and easily accessible.

I to meet small unforeseen expenses. But for larger work that you can plan in advance, it’s sometimes better to just let  

And in the event of unexpected extra costs during major renovations that are financed with a loan, your emergency fund will still be available to cover them.

Financing renovations with a credit card, credit line or personal loan

For medium- or large-scale projects, your credit card or credit line each offers advantages as well as non-negligible disadvantages.

Regardless of the situation, if you benefit from generous rewards, you should make all your purchases with your credit card to maximize your points or cashback. If you know significant expenses are coming up, it may be worthwhile to shop for a specific credit card that will optimize your benefits. However, the main risk with credit cards is not managing the repayment well. A balance of $10,000 that stays on your account for only three months, at a 20% interest, will cost you nearly $500.

Credit lines generally offer a better interest rate. Having access to a credit line can be very useful for longer-term work that requires sporadic cash outlays. However, it also requires a good dose of budgetary discipline. Since credit lines only require that the interest fees be paid on a monthly basis, too many borrowers end up paying a lot of money by making only the minimum payments every month.

A personal loan will generally cost more in interest than a credit line, but less than a credit card and the required monthly repayment of capital requires strict budgeting. 

Using a home equity loan or line of credit from your financial institution for renovations

A home equity loan or a home equity line of credit (HELOC) is similar to the credit options described above, but since the property is used as collateral, you will get a better lending rate than the above options. However, using home equity costs money at the outset, such as notary fees if your current mortgage doesn’t allow for an additional line of credit (umbrella mortgage). You therefore should assess whether the cost of the work is high enough that the interest savings compensate for the initial fees. Also, approval for a HELOC requires the same paperwork like the original financing (proof of income, credit verification, etc.). You must also meet the bank’s allowed loan-to-value ratio.

Refinancing a mortgage to finance renovations

Like a home equity loan or HELOC, mortgage refinancing is an option for people who want to do major work or improve their homes. The low interest and the spread of repayments over a longer period will allow you to keep saving and maintain your lifestyle during work.

In addition to fees, refinancing also requires you to fill out administrative paperwork and go through a credit investigation. This option may also be harder for some borrowers to access as mortgage regulations have become tighter in recent years.

Private mortgage to finance renovations

A private mortgage lender offers a solution that may be advantageous for financing medium- or large-scale renovations. The acceptance process is faster and simpler than the one used by major banks and credit unions. 

A private mortgage is also more flexible because it can offer terms that are better adapted to the borrower’s situation and needs. Unlike conventional institutions, this type of lender doesn’t attach as much importance to criteria like the credit file when assessing a project.  This can be very useful for borrowers who recently went through a somewhat difficult financial situation. Even if you are now completely back on your feet financially, banks may still be reluctant to finance your renovations. 

A second mortgage with a private lender is by far the best option because it lets you borrow money to do the work without touching the mortgage you have with your financial institution. Once the work is done and your financial situation is resolved, you can try to get a conventional bank refinancing to repay the second mortgage. 

Private lenders often have more decision-making flexibility and so can offer an alternative that’s more advantageous for many borrowers.

The 5 essential things you need to know to succeed in real estate flipping

Recent decades have seen an exponential rise in television shows about house flipping. It all seems so easy! And maybe someone close to you has made a short-term profit buying and renovating a property and then reselling it.

We hear a lot less about flips in which the profits do not materialize or there are even losses when the flip doesn’t go as planned. To avoid ending up in this category, here are the 5 most important things you need to know to succeed in real estate flipping.

1. Eliminate conditions at the offer to purchase

In a seller’s market like the one we are in right now (i.e. few offers and lots of demand), high-potential properties disappear from the market in less than a week and often in a situation of multiple offers.

This means that sellers receive multiple offers to purchase and often eliminate those with the most conditions and therefore a higher probability of the transaction failing. They are often willing to accept a lower offer that has no conditions attached.

2. Eliminate financing conditions

Traditional bank pre-approvals are not a confirmation of 100% viable financing. It often happens that after issuing a pre-approval, the bank denies financing for some reason, perhaps because certain expenses were not disclosed by the borrower at their meeting or because the bank discovers that the purpose of the acquisition is for flipping. As a private lender, we can issue a property-specific financing letter that guarantees you financing for the property without any underlying conditions.

3. Eliminate the inspection condition

If you are a seasoned real estate flipper, you probably have a very good knowledge of construction. You can therefore inspect the property yourself at the initial visit or at a second visit before making an offer to purchase. If not, bring your contractor to get an opinion on the building. If you are comfortable with the building, remove the inspection condition.

4. Draw up a budget and don’t overinvest in your property

The most common mistake beginners make in the flipping business is renovating using materials that are of too high a quality given the nature of the building and the area in which it is located. When deciding on the standard of work to be done, look at properties currently for sale and new constructions in the area. They will be your competitors when your house goes on the market. Do not install engineered flooring at $12 per square foot and a $10,000 granite countertop in a $250,000 bungalow! This is not what prospective buyers are looking for and you could end up suffering a loss instead of a profit.

5. Sell with a “superstar” real estate broker

Your strength is finding opportunities and renovating them in order to make a profit. Leave the sale to a real estate broker! They are pros at marketing the property you want to sell. Forget about “old school” real estate agents who still advertise in local newspapers! Choose agents with exceptional visibility on the web, like Gabriel Laflamme, RE/MAX Real Estate Broker, who will invest in your marketing with professional videos and photos. Forget too about platforms like Kijiji, Marketplace and DuProprio because less than 5% of transactions take place there. Plus they never generate enough traction to create multiple bids and overbidding on your property.

Need a private mortgage loan for your next flip project?

Apply online via our website or call us at 1 (877) 220-7738, extension 1.

Why is it important to have access to a private lender when doing a real estate flip?

It’s well known that traditional banks are not interested in providing mortgage loans to real estate investors looking to flip. The reason is simple: they are not a profitable customer base for banks due to the short duration of the loans involved. Real estate investors must therefore look for other financing options when seeking to acquire one or more properties for holding over a short time period. Whether it’s for the acquisition of a single-family home, a multiplex or a lot, private lenders are becoming an attractive option for those wanting to quickly seize opportunities in the market.

1. Who should use a private loan to make a flip?

If you’re in no rush, your profile matches what traditional banks look for and you’re comfortable with lying about the reason for the loan (if you say it’s for flipping, your request will automatically be refused), you can always try your luck at financing your flip with a traditional bank.

However, if you are a serious real estate investor and want to make a number of real estate flips, it’s essential that you have a private lender like Victoria Financial on your side. This will enable you to acquire various properties without the constraints of traditional bank financing. You can make offers without any financing conditions because we take the time to pre-approve financing for every project before you even make an offer to purchase.

2. The advantages of opting for a private loan for your flip projects

All serious real estate investors do business with private lenders in order to acquire the most desirable properties. Here’s why:

  1. It’s much faster than a conventional bank. You can make an application in less than five minutes using our secure online form and get a same-day response. You can also reach us rapidly by phone to discuss your project.
  2. It’s a simple process. There’s no need to go through endless paperwork and comply with debt ratios to qualify. The approval of our private loans is based primarily on the net capital available on the property.
  3. Openness and creativity. Whether the property is vacant or requires major work, we understand that your goal is to get a return on your investment. We analyze your project from an entrepreneurial point of view in order to offer you the right mortgage.

3. Financing a flip – the secret ingredient!

Properties with the greatest potential for flipping never stay on the market for long. They often sell at a higher price and in less than a week. Having a partner like Victoria Financial will give you a head start over other potential buyers because we can provide you with a pre-approval to accompany your offer to purchase.

4.What does it take to qualify for a private loan for the purpose of flipping?

a. The down payment

In order to acquire a property with a private mortgage, you must first have a down payment of at least 25% of the purchase price. For example, if you want to buy a duplex in Montreal for $400,000, the required down payment is $100,000. You can use our mortgage calculator to determine the maximum possible financing for a property.

b. Funds for the renovations

You will also need to have sufficient cash available to finance the work to be done on the property. Make sure you don’t underestimate the funds needed!

How can I apply for a mortgage loan?

Apply online via our website or call us at 1 (877) 220-7738, extension 1.