All Forum Posts by: Ana Gomez

In other words, lenders are counting the expenses associated with the townhouse in their DTI but not the income it will generate. Couple of thoughts:

1. The expenses on the townhouse are only $1700/month. If this is enough to blow their DTI then what the lenders are thinking is that your parents simply don't have enough income to be playing in the real estate game at their age. I would tend to agree. It may not be a bad idea to buy more real estate, but they need to somehow limit their exposure to risk because they don't have enough income to shield them.

2. I am not sure $300/month warrants the strategy in the first place. In other words, your parents are posing the following question - how can we best grow the $250,000 that we have? And their answer is to use it as a downpayment on a bigger house and move into it, and collect $300/month on the townhouse. Regardless of the location. age, or condition of the townhouse, I am not sure this strategy makes much sense. I have to believe there are other ways to multiply the $250,000 in a more diversified manner with a lower risk profile.

3. If they really want to press the issue, they need to rent the townhouse and possibly season it for some time so that the lender are comfortable using the rental income in the DTI. Clearly, they need a place to live. Once you find out exactly how these numbers need to work from a lender you trust, one option would be to rent their townhome and rent them a temporary dwelling.

Ultimately, though, if the idea is to grow $250,000, I am sure there are better ways. Good luck!

Simple solution.  Get a lease in place.

@Paul Defngin asks a good question. If they are of the legal retirement age, a bank should be able loan based on their net-worth instead of their income. Other options to consider would be:

• A DSCR loan (worse terms than a standard mortgage, but way better than hard money)
• A HELOC or refinance on their town house, and put that money towards the new property buying it outright in cash. A HELOC typically has great rates and buying the new property in cash could bring down your cost.
• A loan against a whole life policy, if they have one
• A loan against their stock portfolio, if they have one (must be in a broker-managed account, similar rates and structure to a HELOC)

With that said, it's worth asking if they are planning to self-manage or hire a property manager. I point that out, because you said the expenses on the town house are $1700 and the rent would be $2000. That doesn't leave a ton of room if there are other expenses you havent considered. And if a property manager isnt budgeted for, and they hate self-managing, that could be an issue.

are your parents at retirement age or working? 

Hi there! Where are your parents located? What kind of loan is their townhouse in? Do they have equity in it? Do they have other debt they could pay off to make their DTI lower?

Hello! They're in Broward county, Florida. The only thing they have in terms of debt is their mortgage, all other debts are paid off. They owe 171k on the townhouse, which is valued at 245k last year, so that's about 30% equity I think.