To buy, or not to buy? Debt to income ratio question

6 Replies

Hello all

This is our situation. We have been buying multifamily properties for the last 2 years and wanted to know if buying a single family residence would hurt our chances of furthering our real investment portfolio? We are aware of how debt-to-income ratios impact purchasing ability and don't want to be locked out of additional purchase opportunities. For example, if we reside in the SF home, it would not generate income to balance out the equation. 

We have been house-hacking for the past 2 years, taking out FHAs on two quadraplexes (both cashflowing well), refinancing to conventional mortgages, and doing the same thing over again. We are currently living in our rental and thinking of settling down to a single family home, only if it would make sense financially.

Do you think buying a single family home now would help or hinder us? Or would it be better to wait until we acquire more multifamilies under our belt? We have 8 units now and plan to buy many more. 

Hi @Lauren A.,

It's impossible for anyone to know without all your paperwork. What's your go-to lender say? 

In general, I reckon that if you get EMOTIONALLY attached to a SF primary you want to buy, you WILL spend more on it than is financially optimal, and it WILL hurt your Debt To Income ratio and therefore slow down your ability to buy more bargain multi-plexes at whim.

Will your extra retirement income wish, vs your pretty-home desire, be easy to resolve? Good luck!

Congrats on your progress so far. All the best...

Do you have other income and are your duplexes generating income ?Banks would use 75% of your rental income so if you move out of a unit that new rental income would be counted toward your dti / It is almost a wash, although I don not know your total picture you should be able to enjoy your new sfr without much impact 

If you have owned the two quads for a while and the income from them show up on your tax returns, you should be able to count the rental income. Once you rent out the unit you are currently occupying, that should help offset the new mortgage payment on the SFH (maybe even cancel it out, depending on the rent you can get and how much your new payment is?). In general, though, as Brent Coombs mentioned, chances are you will spend more (overspend?) on a personal home than you would on an investment property. So work out the math and then decide.

@Lauren A.

Just to add to what Chris said your DTI isn't going to get any better if you add a debt payment that isn't producing income. Unless of course it becomes an investment home in the future.

I say this all the time, investors need to find a good Loan Officer or Broker and let them know that you have a long term plan. Part of that plan should be figuring out DTI long and short term. After doing 2 deals your LO should know exactly what your DTI is and they should have told you what it is so that you can both figure if the next deal is doable or not.

@Lauren A. , what @Shaun Weekes said! Except, I'm guessing his "Unless of course it becomes an investment home in the future" comment would be completely off your radar - otherwise, why even contemplate an SFR after so much success with multis?

Your lifestyle clock is likely yearning you towards settling-down/nesting/enjoying. Right?

In which case it bears repeating:- "your DTI isn't going to get any better if you add a debt payment that isn't producing income". But, you already knew that in your opening post!

It comes down to - your choice! Read Shaun's post again - be on close terms with your Lender!...

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