Debt to income ratio

[Reggie Burnett]

Do aAll these people who talk about having several rental properties still adhere to the debt to income ratio on mortgages?   That is like 43% correct?   Obviously the rental income counts as income.  Do people who acquire lots of rentals just pay them off to avoid the debt to income ratio or are they using other creative techniques to get past that?

[Evan Thomas]

@Reggie Burnett I believe that most of the larger banks want to see 2 years of income before they will let you count it as your income, but some smaller banks do not require that buffer period. There are a ton of forum posts about this topic, people seem to have varying degrees of luck with rental income affecting their DTI.

In terms of amortizing the loan, I've recently noticed a trend of investors who, rather than buying as many properties as they can as quickly as possible, are buying cash-flowing properties with traditional mortgages (typically from the big banks: Wells, Chase, etc.) until they meet their DTI. Then they use each of the cash flows (if you bought 4 duplexes you should have 8 streams of cash flow every month) to pay off one property at a time until it is paid off and they can buy another one. This strategy not only cuts out a lot of interest on the loans (while letting you keep a low interest rate anyway), it also gives you a highly cash-flowing property that counts only as income and not as debt which can help you pay off other properties even quicker.

It seems that for traditional lenders the DTI is very important, but once you get to the level where your DTI is an issue, you can branch out into creative financing like portfolio lending, private investors, etc. who care more about the property than your personal finances.