Determine purchase power

[Shubham Porlikar]

Hi all,

I am considering entering real estate investing. As one of the first steps, I am trying to come up with a buy box. But before that, I want to know what is a good way to determine my purchasing power. I want to answer two questions for myself:

1. How much cash do I have in hand available to be spent? Should it be X% of my savings?

2. How much loan can I get approved for?

Can you guide me how to go about answering these?

[Matthew Kwan]

HI Shubham,

Typically lenders will lend up to 50% of your total gross income assuming no debt. The formula is pretty straightforward Total expenses/ total gross income = cannot exceed 50%. Typically I would run a stress test to assure what my max purchasing/borrowing power would be because there are multiple factors that could influence your borrowing power such as house market prices, rates, income, liabilities. It is important to have someone to fully underwrite your file and run multiple scenarios to assure what your best route would be @Carlos Valencia @Albert Bui