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Updated over 11 years ago on . Most recent reply

User Stats

218
Posts
65
Votes
Alex Silang
  • Real Estate Professional
  • Las Vegas, NV
65
Votes |
218
Posts

Real estate limits

Alex Silang
  • Real Estate Professional
  • Las Vegas, NV
Posted

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?

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