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Investing › Building a portfolio · November 2026 · 12-minute read · New to this? Start here

Part 4 of 5 · The Spinning Wheel

The Spinning Wheel

Buy a rental. Let the tenants pay down the mortgage while the house grows in value. Borrow against that growth for the next down payment. Repeat, but only when the rules say it's safe.

In plain English

Instead of buying one house and only holding it, you refinance at renewal and use the money to buy the next one. On the same C$565,000 house used throughout this series, it adds about C$360,000 over 15 years when values grow and rents keep up. When they don't, the rules slow it down, and it ends up close to where simply holding would.

Run it on your numbers ↓See the rules
Buy Hold Refinance Redeploy Equity goes back to work

The bottom line

It pays when values grow and rents keep up. When they don't, the rules stop it.

The edge+C$362KMore than holding the one house after 15 years, reinvesting the cash flow (C$1.50M vs C$1.14M). About C$148K more if you spend the cash flow instead.
The limit±C$55KIn flat values, a downturn, 5.5% mortgages, or prices running ahead of rents, it finishes within about C$55K of holding, ahead in some and behind in others.
The trade-off+C$125KWhat refinancing to 80% every 3 years adds in the base case. It carries the most debt in every scenario we ran and has the weakest result in a downturn.

All figures for one C$565,000 suited house bought with C$152,125, before tax, after 3.3% selling costs. Walk-away value is what you'd have if you sold everything, plus any cash already paid to you. Illustrative, not a forecast.

Run it yourself

The Spinning Wheel Calculator

Change the growth rate, the mortgage rate, how far you refinance and what you do with the cash flow. The downturn check underneath runs the same settings through a bad decade, so you can set the risk at your own comfort level.

Where the money comes from

Every recycled dollar is either borrowed or earned. I report which.

Holding has a quiet problem. As the tenants pay down the loan and the house grows in value, equity piles up while the income grows only with rents, so your return on that equity falls every year. Refinancing puts the idle equity back to work. Here is what went back to work over 15 years in the base case, reinvesting.

SourceAmountWhat it really is
Refinancing at renewalC$317KBorrowed against the paydown your tenants made and the growth in value. It's debt, not income, and growth-driven equity disappears in a flat or falling market.
Cash flow kept and reinvestedC$447KReal earned cash, after the mortgage, operating costs and reserves.
Total put back to workC$764KAbout 5 times the original C$152,125, buying three more houses in years 7, 10 and 13.

Why moving a dollar can raise its return, and why not by as much as you'd think

A refinanced dollar costs the mortgage rate and, in the next house, earns roughly what houses earn. You keep the difference. Measured against what you first put in:

Return on your original cash ≈ return without moving + (amount moved ÷ original cash) × (what the next house earns − the mortgage rate)

Move C$50,000 out of a C$152,000 stake into a house earning 15% while borrowing at 5%, and your original cash earns about 3.3 points more a year (50 ÷ 152 × 10) for as long as that holds. In practice it holds only part of the time. Refinancing waits for renewals, every move costs closing and refinance fees, cash can sit idle until a house passes the purchase test, and when prices run ahead of rents no house does. In the model, the net effect over 15 years is about 2 points a year (16.5% vs 14.3% for holding), not the 30% figures promoted in some courses.

Income now, or a bigger engine later

Spend the cash flow, keep half, or reinvest all of it

Once the houses pay you, you choose. Spending gives you income from year one and the wheel still turns, because refinancing alone buys the next house. Reinvesting builds a bigger portfolio that pays more later.

Cash flowHold the one houseSpinning WheelPaid to you along the wayHouses at year 15Cash flow a month, year 15Annual return (IRR)
Spend itC$925KC$1,073KC$303K2C$2,94217.6%
Keep halfC$973KC$1,119KC$152K2C$2,94215.9%
Reinvest itC$1,136KC$1,498KC$04C$5,41816.5%

Walk-away values at year 15, including cash already paid to you. The house starts at about C$1,026 a month of cash flow. Spending shows the highest annual return because money paid to you early counts for more in an IRR; reinvesting shows the biggest total because it waits longer.

Stress tests

In a bad market the rules protect you. How hard you push decides how much.

ScenarioHold the one houseSpinning Wheel
(75%, 5-year)		Aggressive
(80%, 3-year)
Base caseValues +3.5% a year, 5.0% mortgagesC$1,136KC$1,498KC$1,623K
Flat valuesNo growth for 15 yearsC$814KC$868KC$944K
Prices outrun rentsValues +5.3% a year, rents +2.5%C$1,291KC$1,268KC$1,255K
Higher rates5.5% mortgages throughoutC$978KC$950KC$1,217K
DownturnValues −5% in years 2–3, 10% vacancy for four years, costs +10%, renewals at 7%, then +2% a yearC$588KC$632KC$586K

Walk-away value at year 15, before tax, after selling costs, including cash paid to you. Starting with C$152,125 in every case.

  • A downturn stalls it; it doesn't break itRefinancing stops for years and purchases wait, but nobody has to add money or sell into the fall. The coverage tests and the reserves are why.
  • When prices outrun rents, it stops buyingHouses get too expensive for their rent to pass the purchase test, so refinanced money sits in the bank earning less than it costs. Holding does slightly better. That's the rule working, not failing.
  • Rates matter more than growthAt 5.5% the conservative version can't find a house that passes the test, and it finishes a little behind holding. The aggressive version's 3-year cycle happened to fit one more purchase in, which is luck of timing, not a reason to push harder.
  • Pushing harder is a bet on good marketsRefinancing to 80% every 3 years adds about C$125K in the base case, carries the most debt in every scenario, and has the weakest result in the downturn when you're spending the cash flow.

How I run it

The rules that keep the wheel safe

  • LeverageBuy at 80% loan-to-value. Refinance to 75% at most (80% on the aggressive version), and never past what the coverage tests allow.
  • Purchase testNet rent covers the new mortgage 1.25 times at today's rate, or I add equity or pass.
  • Refinance testAfter refinancing, net rent still covers the payment 1.35 times, and at least 1.00 times if rates rise 2 points.
  • TimingRefinance only at a 5-year renewal, never mid-term, so there are no break penalties. Only if it frees more than the roughly C$4,000 it costs.
  • ReservesAbout C$15,000 per house, growing with values, topped up before any purchase. Shortfalls come from reserves first.
  • Stop switchRecycling stops if portfolio coverage falls below 1.25 times, five-year rates pass 7%, or local vacancy passes 8%. (An operating rule; the calculator models the coverage tests.)
  • Appraisal cushionLender value sets the loan. I plan refinances for a 10% lower appraisal and never count on refinance money for a deposit.
  • ReportingEvery recycled dollar is reported by source: tenants' paydown, growth in value, or cash flow.

What slows the wheel

Friction and risk, and what I do about each

  • Borrowing capacityBanks count only part of the rent, so room shrinks as you add houses. I build the lender ladder early: bank, credit union, monoline lender, then commercial or CMHC-insured debt.
  • Renewal shockA renewal at 7% instead of 5% can push a well-covered house below a lender's minimum. Staggered maturities and the refinance test's 2-point cushion are the defence.
  • Vacancy and repairsEnergy towns are cyclical. I stress-test at 8–10% vacancy and budget maintenance inside operating costs.
  • ConcentrationEvery house in one region tied to one industry is a real risk. Spreading across towns helps; it doesn't remove it.
  • Selling takes timeAn index fund sells in a day. A house takes months and costs about 3.3% to sell.
  • TaxAll figures are before tax. Refinance money is borrowed, so it isn't taxed. Selling triggers capital gains and recapture of depreciation claimed, while an index fund in a TFSA grows tax-free. Get your accountant's view on structure first.
  • ManagementMore houses means more decisions, lender work and oversight, even with local property management.

Who it suits

Which version fits which investor

If you…Best fitWhy
Have steady income, a 10-year-plus horizon, and will hold reservesThe Spinning Wheel (75%, 5-year)Most of the upside, and close to holding in every bad case we ran
Want income now, to top up or replace a salaryThe Spinning Wheel, spending the cash flowIncome from year one while refinancing alone adds houses, as long as reserves stay funded
Want stability, or plan to retire within 5 yearsHold the one houseDebt falls to about a third of value by year 15 and the cash flow keeps rising
Are hands-on, with lenders lined up and time to manage refinancesThe aggressive version (80%, 3-year)More upside in good markets, the most debt, and the weakest result in a downturn
Want growth that's liquid and hands-offA stock index fund, or a blendLower expected return, but no concentration, no management, and it can grow tax-free
Want 80% every 3 years whatever the coverageI'll declineThe extra return is mostly unpriced leverage and liquidity risk

Where to next

← Before thisOne House, Fifteen YearsThe same C$565,000 house, year by year, with the money put in once and nothing added.Read it → Next →Fort St. JohnWhy this town, what the numbers look like there, and the risks of an energy market.Read the brief → Take a stepRequest the Spinning Wheel ReportThe full 15-year model with every scenario, plus the Fort St. John report and current properties.Ask for it →

How the model works. One C$565,000 suited house: 20% down, 2.5% closing costs, C$10,000 setup and a C$15,000 reserve (C$152,125 in total). Rent 0.9% of price a month, growing 2.5% a year; 3% vacancy; operating costs 30% of collected rent, growing 3% a year. Mortgages at a 5.0% long-term planning rate over 30 years; values growing 3.5% a year; 3.3% selling costs. Cash earns 4.5%, reserves 2.4%. New houses are bought at that year's price and must pass the purchase test. Debt rules follow the coverage tests above; lending limits per OSFI Guideline B-20. The stock index comparison grows C$152,125 at 7% a year, net of fees, with no market drops. Every figure on this page comes from the same model as the calculator and the One House, Fifteen Years page.

Disclosure. I'm a licensed real estate advisor with Engel & Völkers Vancouver. I own investment properties in northern British Columbia, and I earn a commission when clients buy or sell through me, including purchases made under this strategy. Operating assumptions come from my own suited houses over recent years.

Illustrative, not a forecast, a financing approval or tax advice. For education and discussion only; not individualized financial, legal or tax advice. Talk to your lender, accountant and lawyer before you act.

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