Will it be harder to purchase our next home if we buy investment?

[Alexis W.]

I'm trying to determine if I'm holding on to a limiting belief. 

i told myself I'd wait until we bought our next home, the "forever house," before buying investment property because we'd be less attractive loan candidates with the debt from investment property. Is that true? As long as there is positive cash flow, will banks look at investment properties favorably?

i have the forever home down payment set aside so that's not an issue. Forever home is pending our child finishing elementary, which would mean 3 more years of waiting to invest. I'm wondering if I can start investing now.

We're currently in a 3/2 SFH, A school district. I think I may want to keep as a rental as well since there's at least $1000 spread between my mortgage and rent prices.

[Frank Avallone II]

Hey @Alexis W.! 

Great question, I had the same one earlier on in my investing journey.

It is a complex question only because it depends on how the numbers work out in each scenario and which loan types you were considering for each purchase.

To answer your question about the positive cash flow, banks do indeed consider rental income from the properties you have and/or are buying. 

For example, if you were to buy your forever home first then it will be harder to qualify for the rental property because assuming you are purchasing a single family home as your primary residence then you will have that mortgage payment as a debt when trying to qualify for the investment property. One work around for this is that you can always use a DSCR loan to purchase an investment property and then you would qualify so long as the rental income exceeds the proposed mortgage. DSCR loans do not need to look at your personal income to qualify.

If you were to buy a cash flowing rental property now then turn around and try to buy the forever home immediately lenders would be able to count 75% of that lease agreement rental income to qualify you for your next purchase. After you have a year of rental income we can use the rental income on your tax return to qualify the next purchase.

Aside from that one thing to consider though is what is the cost of waiting? How much could having a rental property for 3 years help you? 3 years of cash flow, tax benefits, potential appreciation, equity building through mortgage being paid by your tenants. If you are prepared and ready to buy a rental property I would consider doing so if the opportunity presents itself. If the purchase makes sense it could make it that much more realistic to buy your forever home down the line and be in a much better financial situation.

Hope this helps!