Alright I have a question I'm asking now becuase of the situation I am in. From what I understand investors are able to have 10 properties in their own personal name until banks start declining to continue to loan to that individual anymore. Afterwhich the investor would start to start placing their properties into LLCs. How is this possible when DTI comes into play? I currently have 1 property in my own name and another in my LLC. Now I want to purchase another property in my own name and because my DTI is too high I am no longer able to purchase that property. Even with 75% of the current property's rental income being included as personal income. I understand that using Hard Money Loans would allow this, but conventional clearly wont. How are investors putting 10 properties in their own personal name without being declined by the lender/bank?

Most people who can carry 10 loans and still stay below the DTI threshold are high wage earners. It's also a tough balancing act for self-employed individuals: You want to minimize your reported income and maximize your business expenses for tax purposes; But you want to maximize your income and minimize your expenses for DTI/Lending purposes. You can't have your cake and eat it to, and sometimes you have to be strategic about how you structure your income taxes and pay down other debt in order to qualify for financing at the right times.

The hardest part about getting to 10 properties in your own name is doing that while keeping your DTI below the max threshold. The lender will give you credit for some of your rental income as you have experienced, but it is pretty close to a wash after they do their underwriting. How do you get to 10 properties in your own name when you've got a DTI issue? Increase your income, decrease your expenses.

@John B., rates and terms vary a lot more with portfolio loans. Rate isn't always the most important factor when making a decision on financing. As has been discussed above in part conventional conforming loans affect your DTI. So, those can even affect your ability to buy the primary residence you want later on. Conventional conforming loans must be in your name not an LLC. So, you have the added cost of an umbrella liability policy to protect your assets. A conventional conforming loan is a fixed thing but with a portfolio loan a lender you build a relationship might do loan modifications at your request. For example, I had an adjustable rate portfolio loan where the rate reset every 3 years. One year later rates dropped about 1.5%. For a $200 processing fee, I was able to get a loan modification to get my rate dropped early and save a nice chunk of interest. That wouldn't happen with a conventional conforming loan. If you are house hacking and using loans intended for primary residences then conventional financing is great because you can buy with LOW down payments of 5% or maybe 3.5% with an FHA loan but only for a house hack really. Those kind of low down payments wouldn't be available with a portfolio loan.

I don't think anyone here is using the DTI calculation correctly when it comes to investment properties.There's a bit more to it, but here's the gist (I literally just went through this process w/ a lender):Let's say you make $10k a month. That's your income.Now let's say you have a SFH that you live in, at $3k/month. That's your debt. So, your DTI is roughly 0.3Now, you also have an investment property which grosses $5k and has monthly expenses of $4k. So, you net $1k. Take that net income, and add it to your income of $10k so $11k. Now your DTI is 3k/11k or 0.27You DO NOT add the income and debt from investment properties to your DTI. In other words, even with a $10k/month w2, you can still scale to 10 properties if you are buying cash-flowing real estate.Edit: One other note. When buying a new rental property, the lender will typically take 75% of the current market rent (confirmed by appraiser) into account in the DTI calculation. So, let's say the income is $8k they'd take $6k into account. If mortgage is $5k, then you should still be net positive on the DTI side.

@Joel O. Based on your OP, assuming even the 75% income credit... it would appear that your rentals are either losing too much money (based on standard underwriting) or you are shielding too much income in your tax filing. If your 75% rental credit, for that specific rental you have is sufficient to cover the debt and operating costs, then that should technically not affect your DTI a bit. You then default back to your W2. And if you were able go qual with your W2 in the first place for that original property, then you can get another. Obviously if you are a high income earner ($150k to $500k/yr+) and depending on where your are and what price range you are buying, none of this would really matter. Back to the OP. Therefore, raise your rents so that the 75% is sufficient to cancel out that portion of your debt. If you cannot, then perhaps you have not been buying the most efficient property for your goals. For example, if you bought a $200K SFR that carried a mortgage of $1000/month (PITI), AND you rented it for $1200/month. That is not gonna cut it. It should be rented about $1600 to $2000/month or even more. At the higher rent, that property will not affect your DTI and you can go get another. Work backwards and you will figure when to pull the trigger. The above is a an actual example, not just scenario. I have done it with 11 SFRs (one was my primary) at one time and even refinanced them all at once at the same bank. Also to the point of lenders, shop around. Small community banks can be a blessing. The above example was with a local credit union. Of the 11 loans (ranging between 5.1% to 6.75%), 1 was with EastWest Bank, 3 with Wells Fargo, 1 with Nationwide Lending, and the rest with the credit union. I refinanced all with the credit union when rates dropped to about 2.75%. That created even better DTI for more purchases. But I got rid of them all immediately after.. that's another story...

@Joel O. that only applies to conventional conforming loans not any kind of "portfolio loan". For example, go to a local lender and they can lend to you using their own terms and loan products and because they are keeping those loans in their "portfolio" they can give you as many loans as they choose. They may have limits to the loans they wish to give to one person or LLC because they don't want all their eggs in one basket but then you just go to another local lender.

How do people have 10 properties in their own name?

George Mastrosavas

Real Estate Agent · Strongsville, OH · Member since 2016 · 87 posts · 26 votes

3y

@Joel O.

Real Estate Investors:

If you have a portfolio of investment properties, a blanket mortgage could be an option to help you consolidate your finances while freeing up cash through equity over time to buy more properties.

House Flippers:

If you’re flipping houses, a blanket mortgage can enable you to acquire and refurbish multiple properties at the same time in order to sell them when they’re fixed up.

Hope this helps!

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Philip M.

Rental Property Investor · Garland · Member since 2018 · 40 posts · 22 votes

3y

My blue collar W2 is quite a bit less than $100k a year so not a high income earner. I have 10 conventional loans in my name. Each cash flow well so the debit and income are in balance. It can be done but you need to work harder on getting good deals.

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James Hamling

Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes

3y

@Joel O. for some reason I am not seeing what I thought was common knowledge answer to this.

I will use a friend of mine as an example because at one point he was close to 30-some.

The whole limit of 10 has to do with the mortgage industry, how they "flow", which there isn't time to address here so feel free to research that or just ask a Mortgage Banker for an hour of there time and buy them lunch and free drinks to get the crash-course.

The short and simple answer is Portfolio Lending.

ALTHOUGH all this hinges on one simple axiom, that the holdings are good performers. If you are just buying up random properties, and there limping along, barely covering a fair profit BUT your doing it via neglecting maintenance, deferring actions, not correctly accounting and allocating for cap-x and all the things, well there is a reason lending won't lend, and one should address that.

If your doing things smart, your strategically picking your mortgage lender form day 1, to build a relationship. With a focus, from day 1, of getting to a point of stepping that up into a Portfolio Lending relationship. That means they are lending you there $, that stays on there books and is serviced by them. So lending decisions are made by that banking interest and not with consideration of re-sale.

The end goal is an open line of credit. For example $2m open line, that you just use as a cash buyer and when acquisitions hit a certain expenditure $, that bank than wraps it up into a commercial mortgage and replenishes the account and your back at it.

It's NOT via hard-$. Hard-$ should ONLY be used for Bridge Financing, full-stop. Some will say flips, well a flip IS a form of bridge financing. Never ever EVER should anyone ever use Hard-$ for a LT hold, NEVER.

A last note, the goal from day 1 should also be to get away from personal name because that is way too much suite risk exposure. Fact is if a person is going to be a financial success, it's is not a matter of IF but a matter of WHEN as it pertains to lawsuits, it simply happens, that's life, someone will try to crew you at some point and time, if your doing enough business. Have I been? Lol, of course. And that's why I can whole heartedly endorse "If you want peach, Prepare for war". Don't make yourself a nice rip fruit for the scammers to come after, first build some wealth and then deploy the wealth protection strategies.

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Caroline Gerardo

Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes

3y

You are mixing two not similar concepts.

DTI for full documentation loans is based on the net showing on your IRS returns.

Most investors write off more than the principle interest tax and insurance they include all types of expenses to a zero or negative number. This is great to not pay income tax but not in line with conventional loans, what the "bank" want to see as to risk, and doesn't fit some other types of mortgages as well. Depreciation can be added back as income. Many lenders take your actual verified long term lease and give it a 25% haircut as another way to determine how much monthly income you have verses existing and new debt. Many require appraisal to verify the income and don't use short term rents. Lenders use formulas to determine the risk of you not repaying. If your monthly inflow of income is not enough to pay all the existing bills on your mortgage credit report you need to seek other loan types (there are lots of options for self employed).

Not all lenders only can sell 10 loans to Fannie or Freddie. Some can sell more than 10. You might also have conventional type loans not sold to the GSE's so the 10 number is lender by lender rule as to how they sell their loans after closing. A borrower with 10 Freddie loans is more exposed to market risk due to the concentration of income that can and sometimes goes down or fails. GSE loans are government loans and mine government subsidizes rates for you, so there's that.

You can have more than 10 full documentation loans with government type rates but limited few lenders do this. They will service and hold your loans for 12 -36 months to prove the value of the note to be sold.

The vesting in LLC has nothing to do with the 10 limit. Your IRS return will show the k-1 income or loss flowing to your personal returns. A full doc loan will see all or most of these transactions.

Other issue is personal guarantees. You as a human with a FICO score qualify for a rate and physically sign and agree to all the terms and conditions in the note and riders. A LLC probably has no FICO, and can't certify to certain terms.

Commercial loans sometimes do not have personal guarantees they look at the income, market stability, the operating agreements of the subject property alone. Commercial loans are not 30 year loans they require reporting, requalifying, and refinance in 5 or 7 years depending on the lender.

Then there are all the NONQM or not qualified mortgage types which do not align with all the full doc loan types which is another long story. Call me if you need the ins and outs.

Next level hard money/ sometimes called private money/ other short term loans...

In summary to get a full doc loan you need to have a primary business self employed that shows net positive income to cover your housing, car, student loans, credit cards.. or a W-2 for 2 years that covers those. If your rentals have losses you need more income to cover that as well.

Moral ~ don't quit your day job is the road to real wealth in real estate.

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Jay ThomasPro Member

Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes

3y

Getting to 10 properties in your own name can be a challenging task, especially when you need to keep your Debt-to-Income (DTI) below the maximum threshold that lenders usually require. Real estate investors often take advantage of rental income as an additional source of income to help them meet this requirement, but unfortunately lenders don't give full credit for this rental income and it may not cover the DTI burden. This makes it even harder for real estate investors to reach their goal of owning 10 properties! However, with a bit of persistence and hard work, it is possible to make it happen. Best of luck on your journey!

[email protected]832-889-5607

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Joel O.

OP

Investor · Charlotte, NC · Member since 2017 · 73 posts · 28 votes

3y

Quote from @Philip M.:

My blue collar W2 is quite a bit less than $100k a year so not a high income earner. I have 10 conventional loans in my name. Each cash flow well so the debit and income are in balance. It can be done but you need to work harder on getting good deals.

hey phillip, is your current DTI at a normal range (offset) by the rents of those properties?

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Philip M.

Rental Property Investor · Garland · Member since 2018 · 40 posts · 22 votes

3y

DTI for the properties is about 40% which is acceptable for most lenders. My personal DTI is even better since I work at keeping expenses low.

Delayed gratification.

1 Reply

John MorganPro Member

Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes

3y

@Joel O.

I have 10 in my name. I had to add my wife to some of them because my DTI was approaching 50%. She hated getting dragged around to all those closing, but I needed her so her W2 income would help offset all this debt I took on. Lol. My strategy was to slowly scale up with buying 2 properties a year. My lenders counted 75% of the rent for each property so that helped. Once I hit 10, then I was stuck with DSCR and commercial loans which are soooo much easier to get. But the interest rates on them for me have been about 1% higher.

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Philip M.

Rental Property Investor · Garland · Member since 2018 · 40 posts · 22 votes

3y

Quote from @Joel O.:

Quote from @Philip M.:

My blue collar W2 is quite a bit less than $100k a year so not a high income earner. I have 10 conventional loans in my name. Each cash flow well so the debit and income are in balance. It can be done but you need to work harder on getting good deals.

hey phillip, is your current DTI at a normal range (offset) by the rents of those properties?

Yes, well within the normal range.

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How do people have 10 properties in their own name?

How do people have 10 properties in their own name?

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