In real estate flipping, the money is often made at purchase. And the best prices are rarely found in flawless buildings. They hide in the ones others pass on: the duplex with a tired foundation, the house with old wiring, the triplex with one unit too many.

The problem is that banks often refuse to finance those buildings. That's exactly where private lending changes the game.

Non-conforming in whose eyes?

A "non-conforming" building isn't necessarily falling apart. Often, it simply doesn't tick a traditional lender's boxes.

A bank wants a building that is easy to appraise, insure, and resell. A single sticking point is enough to block the file: water infiltration, a fuse panel, an oil tank, a unit built without a permit. And because the bank appraises the building in its current condition, its after-repair value doesn't count.

For an investor, that gap between today's value and tomorrow's is precisely the business opportunity.

Financing the potential, not the current condition

Private lending looks at what the building can become. We analyze the collateral, the renovation budget, the after-repair value and, above all, the exit plan.

The loan covers the purchase and part of the work for a short period, often 6 to 12 months. Once the building is restored, the investor refinances with their bank or sells to a buyer who will easily get a mortgage. Private lending becomes a bridge back to traditional financing.

Two concrete examples

Amounts are for illustration.

The duplex with a cracked foundation

An investor spots a duplex at $210,000. The inspection reveals a major crack and water infiltration. The bank says no.

With a private loan, the investor buys and puts about $45,000 into the work. Nine months later, the building is worth around $320,000. The investor refinances with their bank, repays the private loan, and recovers a good part of the down payment.

The house nobody wants to insure

A 1960s house sells below market value: fuse panel, old electrical service, oil tank. Without standard insurance, no bank will lend.

The private loan finances the purchase and the priority work. The house becomes insurable, then financeable. The investor can sell it or rent it out.

Why not pay with your savings?

It's a common question. Why borrow if you have the money in your investments? In many cases, a private loan remains the more strategic choice.

First, for liquidity. A flip almost always has surprises in store, and an investor who has emptied their accounts no longer has a cushion to deal with them. Second, for taxes: an RRSP withdrawal is added to taxable income, while a project's financing costs are generally deductible. Finally, money withdrawn from investments stops growing, and all your savings end up concentrated in a single building.

With a private loan, your savings keep working and remain available for the unexpected or the next project. Your accountant can help you assess what best suits your situation.

An opportunity that benefits the whole community

Think of the old boarded-up house on Main Street. Nobody can finance it, so nobody buys it, and it deteriorates year after year.

With a private loan, an entrepreneur can set up a business on the ground floor and two apartments upstairs. A year later, the façade has regained its charm, the town collects more taxes, and the neighbours see their property values rise. A successful flip also means housing back on the market and work for local contractors.

Smart moves before you dive in

A non-standard building remains a riskier bet. A few precautions make all the difference:

• Insure the building from day one. If it burns down during the work without coverage, you lose everything and still have to repay the loan. A broker can find builder's risk insurance or a specialized insurer.
• Run the numbers on the whole project. Private financing costs more, so the value created must leave a healthy margin.
• Set aside a cushion for the unexpected. An old building always has surprises.
• Meet with the municipality early, especially downtown. Renovation grants sometimes exist.
• Plan your exit from the start, whether it's refinancing or resale.

A local partner for your projects

When the bank says no, your project may simply need a different starting point.

At Crédit Beauce-Appalaches, we're a team of four people in the heart of the Beauce. For eight years, we've supported real estate investors with a human approach and one clear goal: getting you back to traditional financing as quickly as possible.

Have a building in mind and your institution is hesitating? Get in touch, and we'll look at it together.

This text is provided for information purposes. For your situation, consult your notary, accountant, or insurance broker.