The investor that is using this strategy is looking to have a portfolio of apartment buildings and as each of those apartment buildings increases in value when those assets are refinanced those funds are used to pay for their lifestyle. Usually this strategy will not work for 1-4 unit properties as the process for refinancing is usually based on the qualifications of the owner and not the properties itself. If you do not have income from a job (financial independence or a business owner) then it becomes difficult to get A Financing options which is what you would want to get the most equity out of those properties.
Let’s say you had a portfolio of five or six apartment buildings. And they were spread out so that each year you would be able to refinance one of those buildings. And the refinance released about $200,000 in equity. Those funds are what the investor would use.
In the last few years there have been lots of complications with this particular strategy as interest rates increase the likelihood of being able to refinance assets becomes more and more challenging. This affects the value of the property and the amount of the funds that can be extracted through a refinance.
Also cmhc has added stipulations to how the funds are to be used so if you’re going to use this financing you have to be able to demonstrate that the funds are going to be used towards Capital expenses or the purchase of other assets.
In order to accomplish the refinances you’d have to use a multi-step process where you would perhaps do a bridge to cmhc and first refinance with a conventional mortgage. Then go back to cmhc for a second refinance. It certainly makes things more complicated.
Not to say that this strategy is not possible to continue to use in the future, it just means that there are a lot more challenges involved in using it.
These are the eleven ways that I have seen real estate entrepreneurs use their properties to retire:
Quentin D’Souza is the Chief Education Officer of the Durham Real Estate Investor Club. Author of The Action Taker's Real Estate Investing Planner, The Property Management Toolbox: A How-To Guide for Ontario Real Estate Investors and Landlords, The Filling Vacancies Toolbox: A Step-By-Step Guide for Ontario Real Estate Investors and Landlords for Renting Out Residential Real Estate, and The Ultimate Wealth Strategy: Your Complete Guide to Buying, Fixing, Refinancing, and Renting Real Estate.
Using Real Estate for Financial Independence (Retirement)
Sell Some Assets and Private Lend the Money for Financial Independence (Retirement)
Convert Real Estate Portfolio Into a REIT or Fund for Inter-generational Wealth and for Financial Independence (Retirement)
VTB Mortgages on Apartment Buildings then Private Mortgages for Financial Independence (Retirement)
Sell Some Assets and Pay Off the Rest for Financial Independence (Retirement)