In this article we’ll show you how to buy cash flowing rental properties with the goal of retrieving your investment money back within 12 months or less, so that you can use it to invest in the next property.

In other words, you’ll get to recycle the same investment money into multiple properties and snowball your portfolio.

We’ll go over:

• The demographics to look for when selecting the best Canadian real estate market to invest in.
• The two overarching categories that divide real estate investment strategies (something most investors don’t talk about often).
• And the BRRRR investing strategy that is used to keep your money moving fluidly like a river, not stagnant like a pond. 

Let’s get started. 

How to Choose a Canadian Market & Property To Invest In

At rentalconsulting.com our students have bought over $50 million in real estate by focusing on finding undervalued properties, in an evergreen area, with over 50,000 in population and in a value market.

Here’s what that means:

1. Best Real Estate Market Type in Canada

There are two market types in real estate that play an important role here:

Vanity and the value market.

A vanity market is a city which is sought after for the pride and sense of satisfaction it brings to the residents.

In other words, people move to vanity markets because those are the “cool” places to live – think of Paris, New York & Toronto for example.

A value market, on the other hand, is a city which attracts its citizens not necessarily because of its ‘coolness’, but more so for its employment opportunities. 

We always invest in value markets because those cities typically have lower average purchase prices.

On top of that, value markets are not over inflated. Vanity markets typically are overinflated due to the brand and clout that comes with buying in that city.

2. The Ideal Market Size and Population Number

When it comes to the size of the market and the population, we look at it to be over 50,000 people within a 15 minute drive radius. 

The reason behind this is that cities or townships under 50,000 are volatile to the major employers shutting down. 

Over 50,000 in population leads to more stability and a wider variety of lenders being open to financing the property. 

3. Look for Evergreen Neighborhoods in the City

Before we start scouting for properties, we make sure to identify the evergreen/nicest areas in the city of interest.

These evergreen areas are typically the top three sought after places in the city.

What’s great about evergreen areas is that they tend to attract A+ tenants, who are the exact type of tenant you want to rent to. 

Areas that attract lower quality tenants tend to be risky for missed rent and property damages. Another large risk of investing in lower end areas in a city is that if the tenant demand drops, you might not be able to rent your property where tenants would prefer to rent in the nicer areas.

4. Pick Out the Undervalued Properties

Once you’ve narrowed down your choices to three evergreen areas in a value market, the next step is to look for undervalued properties you can purchase at a discounted price.

These properties typically look a little distressed (but not to the extent of being boarded up, burned down or left to rot).

And those partially distressed properties will allow you to force appreciation through the renovation. 

If you are buying newly renovated properties that are fully optimized, you will need to be prepared to wait a longer period of time (3-5 years) for the value of the property to increase enough to pull your money out and recycle it into the next. 

Wealth Creation vs Active Income

At the beginning of this article, we mentioned there are two categories of real estate investing strategies. 

Those are the wealth creation strategies and active income strategies.

Wealth creation strategies are those that allow you to build generational wealth by leveraging the appreciation of your property which compounds over time.

Compounded appreciation = wealth.

Essentially, the longer you hold onto the property, the wealthier you become.

Active income, on the other hand, makes you money today, but is not a high yield investment. 

With these strategies you are working more of a job by doing the active work. This time will not just be at the beginning of the investment, but the entire time throughout.

A good example of active income is flipping houses or wholesaling properties where you make a one-time profit and that’s it.

Wealth creation on the other hand will be where you hold onto the property to allow for mortgage paydown (i.e gaining equity) and compounded appreciation. This investment strategy will make more money in the long-term.

Wealth creation = money grows steadily for a long-term return.

Active income = exchanging time for quick cash in the short-term. 

What is the BRRRR Real Estate Investing Strategy

Now that you’re aware of the two different routes you can take with real estate investing, here’s a breakdown of the strategy we use to buy rental properties.

Keep in mind that we are focused on long-term wealth creation through real estate, meaning we buy properties with the goal to hold onto them and have the appreciation compound over time for the largest possible gains.

We are only accepting properties that hit a 20%+ return on investment to ensure it’s worth entering into a long-term engagement. 

However, we should note that we are also able to make income off these properties in the short-term through cash flow. So it’s not like we’re waiting for years to make a profit using this strategy, as the cash flow keeps the money rolling in month over month. 

How Does the BRRRR Real Estate Investing Strategy Work?

The BRRRR strategy consists of 5 stages:

#1 BUY: 

The first step of the process is to buy a distressed property that has deferred maintenance and has the potential to have rents increased. 

We typically look for properties that need a bit of TLC but are not too run down to the point where we wouldn’t be able to get financing for them.

#2 RENOVATE: 

Next up is the renovation project.

The goal here is for the renovation to force the appraisal of the property far beyond what you paid for it.

When renovating, we always look to do something unique with the property that would make the renters feel proud to live there.

This will make it easier to attract A+ tenants and even bump up the monthly rent.

However, make sure not to over renovate.

An example of over renovating is installing marble floors and granite countertops in a c-class area. 

The money you invest in the renovation will be basically wasted and will not be recouped in rent payments or upon the sale. 

#3 RENT: 

The goal here is to rent the property for a higher amount than it was previously rented for. 

If the renovation is completed strategically, this should not be difficult to do. 

Make sure to rent the units at what the new fair market rent is for your newly renovated property.

The appraisal of the property, along with your cash flow will be relying on it.

#4 REFINANCE: 

One of the benefits of the BRRRR strategy is that you get to refinance a property and recoup the invested money.

So that you can then reinvest that money into the next property, and the next one, and so on…

To refinance the property, you will have an appraisal completed to update the properties current value after the renovation and the re-rental. 

The difference between what it was worth before the renovation, and what it is worth now should be big enough that the bank gives you a cheque for the refinance. 

When you take on a BRRRR project, the ultimate goal is to get a large enough refinance cheque that it covers the cost of the downpayment and renovation on the property. 

This would leave you with a cash flowing property, with none of your own money left invested in it, and a tax free cheque from the refinance that you can use to invest in the next property.

#5 REPEAT: 

Once you get your hefty refinance cheque, you will certainly want to repeat the process!

Do not underestimate the power of the repeat here.

This is a type of buy and hold strategy, but allows you to recycle the same down payment onto multiple properties and ultimately snowball your portfolio. 

Bonus: Download the City Research Exercise

To get you started with your first (or next) rental property purchase, we’ve put together a City Research Exercise that you can download for free here.

Use this sheet to collect the data when you find the demographics for three separate cities. This will allow you to advance to the next step after knowing your market.