How to Get Money for Building Your Rental Property Portfolio

The biggest thing stopping people from investing in real estate? Money. Specifically, figuring out where to get it.

If you want to buy multiple rental properties but don’t have piles of cash sitting around, you’re not alone. The good news is there’s a proven path forward, and it starts with way less money than you think.

Starting Small: The 5% Down Strategy

Here’s something most people don’t know: you can buy a property with just 5% down. There’s a catch though – you have to actually live in it.

The smartest move? Buy a duplex or any property with two units. Live in one side and rent out the other. Your tenant helps pay your mortgage while you build equity.

This isn’t just theory. Scott Dillingham from LendCity did exactly this. He started in Sarnia with his first property at 5% down, then moved to Windsor and bought a duplex the same way. Each time he moved, the previous property became a rental.

The Reality Check

You actually have to move into the property. Saying you’ll live there just to get 5% down, then not doing it? That’s fraud. Don’t do it.

Also, you can only use this strategy three times in Canada. Why? There are only three mortgage insurance companies, and each will only insure one property per person. So this works great at the start, but you’ll need other strategies after that.

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Why You Should Renovate Before Renting

Here’s what successful investors do differently: they renovate every rental property before putting tenants in.

This does three things:

You can charge higher rent for a nice, updated unit
You deal with way fewer maintenance calls and complaints
The property is immediately worth more than you paid for it

Think about it. Would you rather constantly fix broken appliances and outdated fixtures, or handle the occasional minor issue? Renovating upfront means you’re fixing problems before they become your problem.

Turning Equity Into More Properties

After you buy a property with 5% down, something cool starts happening. The property goes up in value. Between market appreciation and your renovations, that 5% equity you started with could be 20%, 30%, or even 40% within a year or two.

Now you can refinance. Banks will lend you up to 80% of your property’s value. If your home is worth more now, you can pull that extra equity out as cash.

That cash becomes your down payment for the next property. And the cycle repeats.

What About Down Markets?

Sometimes the market goes down. That’s normal. Look at any long-term real estate chart – from 1900 to today, it trends up despite temporary dips.

Don’t let a down year scare you. Sometimes the best time to buy is when prices drop. Just make sure you’re holding properties long enough to benefit from the upward trend.

The Mortgage Plus Improvements Trick

Once you’re buying full investment properties (20% down, not living there), here’s a strategy most investors don’t know about: mortgage plus improvements.

Here’s how it works:

Get quotes from contractors for your planned renovations
The lender approves your mortgage plus the renovation amount
They hold onto the renovation money
You do the work using your own funds
Once it’s done, they reimburse you

This lets you buy and renovate without having all the cash tied up long-term. You just need enough to float the renovations until you get reimbursed.

For Bigger Projects

If your renovations are really big, you might need a progress draw mortgage instead. These release money in stages as you complete the work – maybe 20% after you’re 20% done, another 20% at 40% completion, and so on.

These come as open mortgages (higher interest rate) because they’re temporary. Once renovations are done, you convert to a regular mortgage.

Timing Your Refinance

After you finish renovations, don’t rush to refinance right away. Wait 3-6 months.

Why? Appraisers who see fresh before-and-after photos often only value the property at what you paid plus renovation costs. They don’t give you credit for the actual appreciation.

Wait a bit, and they’re more likely to value it higher. That means more money in your pocket to buy the next property.

The Critical Mistake Most Investors Make

Here’s where people mess up: they work with lenders who don’t specialize in investment properties.

Picture this: You refinance your home to pull out money for a rental property. The lender gets you the refinance, you get your cash, everyone’s happy. Except… that lender never checked if you have enough income to actually qualify for the rental purchase.

Now you owe more on your home, pay more interest, and can’t buy the rental. You’re worse off than when you started.

A specialized lender thinks ahead. They check if both steps work before doing either one. This isn’t optional – it’s essential.

Moving Up to Commercial Properties

After you’ve got several houses or duplexes, the next move isn’t buying more of the same. It’s moving to bigger buildings – 6 units, 12 units, 20+ units.

Commercial financing actually works better for bigger properties:

Down payments can be as low as 15% (vs 20% for residential rentals)
You can get 35-40 year amortization (vs 25-30 years for residential)
Longer amortization means lower payments and better cash flow

Many investors eventually sell their smaller properties and use all that money as down payments for larger apartment buildings. It’s not exiting real estate – it’s scaling up.

Economies of Scale

Bigger properties cost less per unit to maintain. Need to replace 6 furnaces? Buying all at once gets you volume discounts on equipment and labor. Same with flooring, roofing, everything.

This is why successful investors eventually move to commercial. The numbers just work better.

How Commercial Properties Are Valued

Here’s something important: commercial properties are valued based on the income they produce, not just comparable sales.

This means every dollar you increase monthly rent can increase property value by $10-$100, depending on location and property type.

So when you renovate and raise rents on a commercial property, you’re not just improving cash flow. You’re dramatically increasing the building’s value. Then you refinance, pull that equity out, and buy something even bigger.

Protecting Your Cash Flow

Throughout all of this, never forget: properties need to cash flow. Don’t pull out so much equity that your properties barely break even or go negative.

Aim for at least a couple hundred dollars positive cash flow per property after refinancing. This cushion protects you during vacancies, repairs, or market changes.

The Bottom Line

You can build a serious rental property portfolio starting with just 5% down. The secret is understanding the cycle:

Buy with low down payment (5% if you’ll live there, 20% for pure investment)
Renovate to increase value and rent
Wait for appreciation
Refinance to pull equity out
Use that equity to buy the next property
Scale up to commercial when ready

The money doesn’t have to come from your job or savings. It comes from the properties themselves, as long as you work with lenders who understand investment properties and plan multiple steps ahead.

Want to talk about your specific situation? Call LendCity at (519) 960-0370 or visit podcast.lendcity.ca for more resources.

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Frequently Asked Questions

How much money do I need to buy my first rental property?

You can start with just 5% down if you're willing to live in the property. The best strategy is buying a duplex – live in one unit and rent out the other. Your tenant helps pay the mortgage while you build equity. After you have three properties, you'll need 20% down for additional investment properties.

Can I say I'll live in a property just to get 5% down, then rent it out?

No, that's fraud. If you're using the 5% down payment option, you must actually move into and live in the property. Only claim you'll live there if you genuinely plan to do so.

Should I renovate a rental property before getting tenants?

Yes. Renovating before renting lets you charge higher rent, dramatically reduces maintenance calls, and immediately increases your property value. This upfront investment pays off through better cash flow and fewer headaches down the road.

How do I get money for my second and third rental properties?

Wait for your first property to appreciate (usually 1-2 years). Then refinance to pull equity out – banks will lend up to 80% of your property's value. Use that cash as your down payment for the next property. Repeat this cycle for each additional property.

When should I refinance after completing renovations?

Wait 3-6 months after finishing renovations before refinancing. Appraisers who see immediate before-and-after photos often only value the property at purchase price plus renovation costs. Waiting allows them to include appreciation value, getting you a higher appraisal and more money.

What is mortgage plus improvements and how does it work?

Mortgage plus improvements lets you finance renovations along with your property purchase. The lender approves both amounts, holds the renovation money, you complete the work with your own funds, then they reimburse you. You need enough cash to float the renovations temporarily, but you get it all back.

When should I switch from houses to apartment buildings?

After you have several single-family homes or duplexes, consider moving to 6+ unit buildings. Commercial properties offer lower down payments (as low as 15%), longer amortization periods (35-40 years), and economies of scale that make maintenance cheaper per unit.

How much cash flow should each rental property generate?

Aim for at least a couple hundred dollars positive cash flow per property after all expenses, including your mortgage payment. This cushion protects you during vacancies, unexpected repairs, or market downturns. Never pull out so much equity that your properties barely break even.

Disclaimer: LendCity Mortgages is a licensed mortgage brokerage, and our team includes experienced real estate investors. While we are qualified to provide mortgage-related guidance, the broader financial, tax, and legal information in this article is provided for educational purposes only and does not constitute financial planning, tax, or legal advice. For matters outside mortgage financing, we recommend consulting a Chartered Professional Accountant (CPA), licensed financial planner, or qualified legal advisor.

Written by

LendCity

Published

December 22, 2025