DTI and buying more properties

[Terri O'Brien]

I am in the process of buying my second rental property. I already own my home in Colorado, and have purchased one rental property this past April in Vermont. So I am a fairly new investor. I have asked the bank for a pre-approval on this second property. They said my DTI looks high. The duplex is $110,000 and I am getting a cash out refi on my first rental property in the amount of $55,000 which I am going to use part of this as a down payment ($27,500). So my mortgage would be $82,500. The tenants on the top floor pay $1295 each month and all utilities, and the tenants on the bottom floor are getting evicted, but I am planning on turning that unit into a long term rental and charging $1200 a month for that. So the rents will cover the mortgage. How do people get around this when they are building momentum without getting discouraged?

[Corby Goade]

The struggle is REAL for new investors trying to grow a portfolio with a W2- it can be really slow to start for a couple reasons:

- As @Brian G. mentioned, lenders typically only credit your income with 75% of your rents, so keep that in mind as you evaluate possible new properties. 

-Lenders typically give you $0 credit for rents towards your income until you have two tax cycles as a landlord. 

Creative financing is great- if you can find lenders or partners who can help on that end, it can help you to scale faster. All of that said, remember that REI is a "get rich slow" scheme. If you are buying right and being patient, in the long run your rents will continue to climb as your liabilities remain stable, which will increase your DTI over time. A decent deal a year in growing markets should put most people in a position to replace their day job salaries in a decade or so.

Best of luck!