Real estate limits
I was running some numbers and one thing confuses me.
I've read that banks only allow people to take on a mortgage 2-2.5x their income. Rental income is added at a 75% rate.
Doesn't this limit the size of real estate empires unless someone is making a very high salary?
Lets say someone makes 50k year. He buys his residency at the maximum allowed at 2.5 x 50k = 125k.
He wants to buy a rental property.
$100k mortgage
$1500 monthly rent ($18,000/year)
$18,000 x .75 x 2.5 = $33,750. He is unable to buy the property because it is out of his limit.
I'm probably making a newbie mistake here. What am I overlooking? Are banks really that conservative?