19 Oct 2020

The title of this blog post isn’t mincing words. The photos below are ones from a listing I recently saw in Toronto, asking about $600,000.

This, folks, is a dump with a capital “D”. (Keep scrolling, I promise this will be worth it)


While many of you may see a disaster, some of you may see opportunity. This is one of the worst properties I have seen in a long time but it’s not something that is impossible to finance. “Who would want to live there?” Well, nobody would in this state. However, if you see opportunity when others see fear or disaster, read on.

The first thing I would want to know is: What is your PLAN here?

Is your plan with this property to renovate? Tear down? To an addition?

The second thing I need to know is: how much money you got?

JUST having 20% down would barely get you in the door. And it’ll be very expensive. For a property like this you need to have at least 20% PLUS you should have at least 25% of the construction costs.

The third thing I’d want to know is: have you done this before?

I know they make it look sooooo easy on HGTV but believe me – it’s actually very difficult. Dealing with;

  • the city for permits
  • the appraisers for value
  • the lender for approvals
  • the neighbours for not pushing back
  • the contractors for building
  • the materials for supply
  • your partner or family for stress

Is a long and arduous process. Not easy, but, possible.

If you’ve made it this far then here are your options for a property like this.

  1. If you have the CASH to buy this, this is the easiest. Well, “DUH”, you say? I don’t mean cold hard stacks of 100s. I mean that or available room on your Home Equity Line of Credit. The reason cash is king here is, you’re going to (probably) wait a while (3-12 months) before you’d get a permit to do anything to this property and clearly (at least I think), doing a quick flip is out of the question.
  2. If cash is not an option – we can finance the LAND VALUE ONLY usually at 35% down payment with strong lenders. You may likely pay a higher rate plus fees, but this is your second best bet. This will at least tie up the property for you while you go hunting for those permits.
  3. If you do not have 35% down – a PRIVATE MORTGAGE may be possible at 20% down. Again, land value only. What does land value only mean? Means the appraiser will give you the value of the land itself. Clearly the house is worth nothing (matter of fact it’s worth less than the cost of demolition). That being said, a private mortgage will be very VERY expensive. Instead of slightly higher rates, you’re looking at double. Instead of a 1% fee, you’re looking at 3%. Ugh!

So let’s say you’ve financed this property. Now what?

I go back to the original question. Clearly your plan is to do a major renovation/addition OR teardown. In either case, construction financing is your best friend if you do not have all of the cash at hand to finance this. And even if you do, you may want to finance it because rates are stupid cheap today.

Here’s how construction financing works today:

I can typically get up to 80% of the FINISHED VALUE of the home in construction financing, less the 1st mortgage on the house.

Here’s how that works.

You paid $600K for the dump.

You put down 35% and have a 1st mortgage of $390,000

It’s not out of the realm of possibility that this house on a 25 foot wide lot could be worth $1.5M when it’s built.

A 3000 square foot house at an average of $250/square foot would cost you $750,000. Plus $390,000 in 1st mortgage = $1, 140, 000.

80% of $1.5M is $1.2M. Ta-dah! a $60,000 excess in case of emergency.

To be fair it does not work EXACTLY like this. There ARE nuances to the various construction lending products. The above is JUST an example and not an offer of any kind for anyone to do this without talking to me first. However, it should give you a sense of how to finance a dump, right?

Once you have finished your renovation and build, depending on the lender(s) you are working with, you can refinance the debt into one mortgage and either flip this house or keep it.

And that, folks, is how you finance a dump with a capital D.

Call me anytime you have questions 416-910-4448 or email me jake@mortgagejake.com

I’ve seen and heard it all so chances are high I can help you out.


Leave your thought