Ready to invest more money but have some LLC questions.

[David Janash]

Totally new to BP.....Thanks in advance

I'm a dentist in NYC, I've always loved the idea of retiring in Phoenix and recently owning property for rental income and appreciation. So late 2012 we finally found a place, bought it with my own 20% closed in Nov. Formed an LLC in Jan, started collecting rent in Feb and in March completed the transfer of the title to the LLC.

My mortgage broker, CPA, transfer title agency all told me that this is the way people did this and it wasn't a big deal.

I just have a couple of questions. When can I buy a second property? Assume I don't have another 100K for Down Payment.

Does the Loan(s) ever come off my personal credit report?
Can I use leverage off this first house?
Will the second property be wash, rinse repeat as far as order of events go?

Any criticisms, thoughts, concerns, answers or ideas would be SUPER helpful

[Kelly N.]

Hi David,

I am a newbie too. Just purchasing our second rental property with another 25 % down.

What I have found our limiting factor to be (aside from coming up with another DP) is the Debt to Income ratio. The banks are currently allowing you to have a 43% DTI (some banks may allow more, but I believe 43% to be pretty standard). To calculate this, they are taking your total debt payments (including taxes and insurance) and dividing by your gross income. They will not count rental income as income in this equation until you have had that rental house on your tax returns for 2 years. So each new loan counts against your DTI ratio for the first two years. Then they use a formula to calculate the income produced by that property, it may vary by bank, but my bank uses 75% of total rent less the PITI (Principal, interest, taxes & insurance) payments to use on the income side of the equation. Your mortgage on your personal home also counts against your DTI, as do (I am assuming) car payments and any other recurring debt payment.

The good news is that if you invest wisely, in a few years you shouldn't have a problem coming up with the DP if you reinvest the cashflow from your current properties, and they will also help your DTI ratio to allow you to continue to borrow (leverage!) more money.

From what I understand, lending will get a little tougher after loan #4, and they will require more % down and possibly a higher interest rate for loans 5-10.

Hope that helps!
Kelly