Financing Investment properties!

[Kyle Madden]

Hi there, I’m Kyle and a beginner real estate investor. I have my primary residence here in BC, and 4 months I purchased ago a rental in Windsor making me 500/ month. I am now looking to purchase another property … however my broker told me I can only afford another place up to 300k. . My question is… how do people afford so many doors? After 3 properties do people have to turn to JVs where your partner holds the mortgage? Is it commercial lending I have to turn to, where the lender doesn’t look at my income? What other ways are there other than the two I stated? Any help would be appreciated!

cheers Kyle 

[Chris Baxter]

Welcome to BP, @Kyle Madden.  Residential mortgages (4-5 units and less, depending on lender) are primarily based on your PERSONAL ability to carry the mortgage. Assuming rules haven't changed (I haven't done a residential mortgage in some time), lenders count only half the income against 100% of the expenses for rental properties during underwriting. This means that at some point (usually after 3-4 properties) your debt service ratios are out of whack and you no longer qualify for a conventional residential mortgage.  Strategies to continue to grow include:

1) Get a partner to be on title and help qualify

2) Use private money

3) Move to commercial properties (5-6+ units)

I made the jump to commercial multifamily a while ago and haven't had any issues growing my portfolio. Commercial mortgages are mostly tied to the property, using criteria based on NOI and LTV. Your net worth is also considered in underwriting, but lenders typically only look for a net worth of ~25% of the property value.

There are many mortgage specialists on this forum that can provide more detail and insight, and I'm sure you'll see some responses pop up quickly.  Good luck and have fun!