Out of state Investments and Rental Income

[William D.]

Good Day BP!

Can I use the properties rental income to help qualify for a loan? If so, what are the details? 

[Chris Mason]

Originally posted by @Irina Belkofer:

I like that info @Chris Mason.

The only bad news, all the lenders I talk with, repeat the requirements: 2 years of P&L, and/or one year of bank statement for no docs.

Could you specify how you count the rental income: gross income, cash flow, or some %% of projected income? How do I prove that there will be income and how much  if I don't have to bring the lease agreement on the subject property? Especially, that there is always losses for the first year of owning a property - it starts cash flowing much later.

Would bank still lend on such a property?

 Hi Irina,

Fannie Mae puts their rental income calculation forms right up at that website I linked above for anyone to download. 

Asking a generic lender about this would be no different than asking me about reverse mortgages - I've never done one and don't know a whole lot about them. IRL I'm the type that's perfectly willing to say "good question, I have no idea, I don't do reverse mortgages," but some folks might not want to sound like they don't know something (esp when speaking to a real estate agent), so they just repeat the general documentation requirements for self employed people when you ask about rental income.

To find a REI-friendly local lender, go to your local REIA meetup and ask them who is doing their loans.

For tenant occupied real estate, the lesser of what's on leases, or appraised market rents, is used. For vacant real estate being purchased as investment properties, it's just appraised market rents. Once all the overlays are stripped away, the biggest hangup is that disabled tenant paying $250/mo in rent when market rents are $2500/mo. Aside from that and other scenarios that lead to cash flow negative real estate, and assuming no changes in employment, DTI should never be an issue with a real estate investor. Each cash-flowing rental property should IMPROVE their DTI; how else would all these folks on BP from the Bay Area have 8 mortgages for a half million dollars each & still be able to get a 9th?