All About The Build & Hold Strategy

Updated: Aug 11, 2020

Build & Hold has been our main strategy ever since we started. If you're reading this I'm assuming it's because you're toying with the idea of getting into it as well and I'm glad you are. In Canada there's actually a housing shortage and while renovating is good, it doesn't help solve this issue. I'm going to give you a quick run down regarding this strategy based on our personal experience, however like anything else, don't jump in without doing your own research.

New builds need the right market:

In order for new builds to work to your advantage, you need to be in the right market. By that, I mean you need to be where the values are higher than the cost to build. If you're in an area where you can buy houses for less than 150k, well it's likely going to cost you more to build something new.

It's important to have a strong understanding of your market before you decide to invest, no matter the strategy. Like I for one believe Ottawa is a great market. It's right in the middle of the 2 major cities of Toronto and Montreal, so when prices start to climb in there, people move closer to the National Capital Region where it's just a little more affordable and where there's still a healthy supply of employment opportunities.

How to finance for New Builds:

When it comes to building new, banks have a higher risk when loaning for something that doesn't yet exist. They don't want to repossess a half built home because that would be extremely difficult for them to resell. That's why many banks don't do these types of loans, especially if you're a first timer with no previous construction history. However it doesn't mean it's impossible to get approved for a loan like this today, it just means you might have to get a little more creative to get it.

Private Lending: We've found that private lending was easier to get than conventional lending because there was no bureaucracy, no delays and no hassle. The down side is it's more expensive. We had set up fees, we had to put more of our own money down, plus the interest rate was more expensive but it was just a short term loan while we built. When construction was over we got a conventional mortgage and paid back the loan, all the fees, the interest and we were even able to pay ourselves a little something extra. We had even asked our lender to formulate the loan in progressive cash advances like a typical Auto Construction loan that way we only paid interest on a chunk at a time.

Typical Construction Loans:

Our typical construction loans with the credit union are definitely a cheaper way. The usual interest during construction is around 4%, there are no start up fees and we never really needed to spend any of our own money down (unless we wanted to get things started while we waited for the bureaucracy and all the paperwork to come through). But normally we just had to have the 20% available as a back up, either in our account or as a line of credit. The only downside is that generally the interest rate on the final mortgage is decided at the beginning of the loan, so it could end up being just a tad higher than the going rate.

How much construction knowledge you need:

Having construction experience is definitely a must. When we first started on our first build, we were fortunate enough to have my dad coach us but we also had an architecture degree under our belts which helped us understand the fundamentals of what we were doing. What my dad taught was something you don't learn from books however, he helped us line up the trades and taught us a lot about the trade work and how to do it right. If you don't have someone who can coach you, all you have to do is ask around. You may have to ask several contractors before one of them agrees and it might even cost you a fee but that's OK. I personally think this is the best way to learn and once you've done one construction with that guidance, you should be able to do the next one with less guidance.

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