Increasing Affordability With....
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Across the country, many Canadians face the same challenge when buying a property: qualifying for enough mortgage funds to purchase a desirable property. One often-overlooked strategy is purchasing a property and renovating it right after purchase to create more units out of the property and allowing one unit (if living in the other unit) or all of the newly renovated units to be rented out.
This approach can greatly improve a borrower’s affordability.
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How Does This Strategy Increase Affordability?
In the review of how much a prospective borrower can qualify for, most lenders review the income of the prospective borrower as it relates to expenses. With certain lenders, borrowers are able to use the projected rental income expected to be derived from the newly renovated property which amplifies the income that can be shown on an application for financing. This amplified income can usually result in greater lending amounts becoming available to the borrower which in-turn would expand how much they can afford and be approved for.
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Below is a simplified example showing how adding a rental unit that generates $1,500/month can increase affordability by approximately $89,000
Without New Rental Unit Income
• Income: $100,000/year
• Credit History: In good standing
• Other Debts: $0
• Down Payment: $150,000
• Mortgage Affordability: $440,000
• Total Buying Power: $590,000
With a Newly Added Second Unit Producing $1,500/Month
• Income: $100,000/year + $18,000/year rental
• Credit History: In good standing
• Other Debts: $0
• Down Payment: $150,000
• Mortgage Affordability: $529,000
• Total Buying Power: $679,000 → +$89,000 increased affordability
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A whole new array of options for potential property buyers can open up:
• Perhaps it can get a borrower into a free-hold home instead of a condo, or
• It can help a borrower afford a property in the city as opposed to less desirable outskirts, or
• Would provide the opportunity to generate more incoming cashflow to help with lifestyle, pay the mortgage off faster, invest more for retirement or grow your real estate portfolio faster
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Common questions about Purchase-Plus-Improvements strategy when adding a rental unit
How much time do I have to complete the renovations?
Typically within 90- to-120 days of the purchase. Some lenders may allow slightly longer timelines depending on the scope of work amongst other details.
How does the purchase get integrated with the prospective renovations on a mortgage?
• Detailed renovation quotes are provided, showing materials, labour and other costs required to create the new unit along with details on the purchase of the property.
• An appraiser provides a valuation of the current value of the property along with the post-improvement value of the home.
• The total mortgage amount the borrower is approved for is based on the post-improved value of the home.
• Funds are advanced usually in two stages—mortgage proceeds for the purchase amount are delivered at close of the purchase, and then funds aligned with the renovation are released once work is completed and confirmed to be executed in-line with the quote provided.
How do I pay for renovations before I get reimbursed upon the completion of the project?
Typically through savings, a line of credit or credit card, or a loan. Contractors executing renovations will typically ask for portion of the total renovation costs up front or in stages as progress is made. Your mortgage agent can help review your options with you.
Can I do the renovations myself?
Yes—many lenders will allow you to do the work yourself (as opposed to a contractor), or part of it, provided the work you complete aligns with a detailed quote provided of work to be done. The calculation for renovations covered will differ from lender-to-lender, some allow your personal labour costs (eg: your own sweat equity) on top of the materials and other costs to be included and other lenders may only allow the cost of materials.
What is the main criteria for the newly renovated unit to qualify for the projected rental income to be used? Needs separate entrance, its own kitchen and bathroom.
• A separate entrance
• Its own kitchen
• Its own full bathroom
• *you will want to verify with the specific lender for the exact requirements
What if you already own the home and want to add a unit to that property?
Yes, you can also execute this type of deal on a property you own via a refinance. Not as many lenders allow this to be done for a refinance (as opposed to a purchase), but the opportunity is certainly available.
What is the maximum amount I can borrow for improvements?
This varies by lender, below is a generalized overview:
• Some lenders have a maximum dollar limit (e.g., up to $50,000, up to $100,000).
• Other lenders use a maximum percentage-based cap (often up to 20% of the property's pre-renovation value).
Each lender has its own guidelines.
Can you do this with a default insured purchase where the downpayment would be less than 20%?
Yes, opportunities for this certainly exist.
What are some logical steps you could take to start reviewing what’s viable for you?
• Gather your financial details, including your current income, credit profile, and investments/savings, along with details on any property you currently own or are considering purchasing (estimated property value, location, property taxes, existing or expected rental income, and any financing secured against the property).
• Connect with a Mortgage Agent, ideally one with access to multiple lenders, who can review a broad range of solutions and work towards an estimate of your borrowing power and affordability.
• Provide renovation details where available, including the type of improvements being considered, estimated costs and expected rental income that would be derived.
This approach can greatly improve a borrower’s affordability.
________________________________________
How Does This Strategy Increase Affordability?
In the review of how much a prospective borrower can qualify for, most lenders review the income of the prospective borrower as it relates to expenses. With certain lenders, borrowers are able to use the projected rental income expected to be derived from the newly renovated property which amplifies the income that can be shown on an application for financing. This amplified income can usually result in greater lending amounts becoming available to the borrower which in-turn would expand how much they can afford and be approved for.
________________________________________
Below is a simplified example showing how adding a rental unit that generates $1,500/month can increase affordability by approximately $89,000
Without New Rental Unit Income
• Income: $100,000/year
• Credit History: In good standing
• Other Debts: $0
• Down Payment: $150,000
• Mortgage Affordability: $440,000
• Total Buying Power: $590,000
With a Newly Added Second Unit Producing $1,500/Month
• Income: $100,000/year + $18,000/year rental
• Credit History: In good standing
• Other Debts: $0
• Down Payment: $150,000
• Mortgage Affordability: $529,000
• Total Buying Power: $679,000 → +$89,000 increased affordability
________________________________________
A whole new array of options for potential property buyers can open up:
• Perhaps it can get a borrower into a free-hold home instead of a condo, or
• It can help a borrower afford a property in the city as opposed to less desirable outskirts, or
• Would provide the opportunity to generate more incoming cashflow to help with lifestyle, pay the mortgage off faster, invest more for retirement or grow your real estate portfolio faster
________________________________________
Common questions about Purchase-Plus-Improvements strategy when adding a rental unit
How much time do I have to complete the renovations?
Typically within 90- to-120 days of the purchase. Some lenders may allow slightly longer timelines depending on the scope of work amongst other details.
How does the purchase get integrated with the prospective renovations on a mortgage?
• Detailed renovation quotes are provided, showing materials, labour and other costs required to create the new unit along with details on the purchase of the property.
• An appraiser provides a valuation of the current value of the property along with the post-improvement value of the home.
• The total mortgage amount the borrower is approved for is based on the post-improved value of the home.
• Funds are advanced usually in two stages—mortgage proceeds for the purchase amount are delivered at close of the purchase, and then funds aligned with the renovation are released once work is completed and confirmed to be executed in-line with the quote provided.
How do I pay for renovations before I get reimbursed upon the completion of the project?
Typically through savings, a line of credit or credit card, or a loan. Contractors executing renovations will typically ask for portion of the total renovation costs up front or in stages as progress is made. Your mortgage agent can help review your options with you.
Can I do the renovations myself?
Yes—many lenders will allow you to do the work yourself (as opposed to a contractor), or part of it, provided the work you complete aligns with a detailed quote provided of work to be done. The calculation for renovations covered will differ from lender-to-lender, some allow your personal labour costs (eg: your own sweat equity) on top of the materials and other costs to be included and other lenders may only allow the cost of materials.
What is the main criteria for the newly renovated unit to qualify for the projected rental income to be used? Needs separate entrance, its own kitchen and bathroom.
• A separate entrance
• Its own kitchen
• Its own full bathroom
• *you will want to verify with the specific lender for the exact requirements
What if you already own the home and want to add a unit to that property?
Yes, you can also execute this type of deal on a property you own via a refinance. Not as many lenders allow this to be done for a refinance (as opposed to a purchase), but the opportunity is certainly available.
What is the maximum amount I can borrow for improvements?
This varies by lender, below is a generalized overview:
• Some lenders have a maximum dollar limit (e.g., up to $50,000, up to $100,000).
• Other lenders use a maximum percentage-based cap (often up to 20% of the property's pre-renovation value).
Each lender has its own guidelines.
Can you do this with a default insured purchase where the downpayment would be less than 20%?
Yes, opportunities for this certainly exist.
What are some logical steps you could take to start reviewing what’s viable for you?
• Gather your financial details, including your current income, credit profile, and investments/savings, along with details on any property you currently own or are considering purchasing (estimated property value, location, property taxes, existing or expected rental income, and any financing secured against the property).
• Connect with a Mortgage Agent, ideally one with access to multiple lenders, who can review a broad range of solutions and work towards an estimate of your borrowing power and affordability.
• Provide renovation details where available, including the type of improvements being considered, estimated costs and expected rental income that would be derived.
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Rob Bryant, PFP®
Mortgage Agent Level 1 Mortgage Architects FSRA # 12728 |
February 5th, 2026
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