Real Estate Investor · Centennial, CO · Member since 2015 · 106 posts · 38 votes
I'm looking into buying 2-4 SFR turnkey properties over the course of 2017. I currently have a credit score close to 800 but wasn't sure if the purchase of each property would lower my score. I didn't have a an exact timeframe for buying these but it could be in quick succession. I was wondering if I should spread out these purchases over a longer period of time so my credit score doesn't drop and make the purchases more difficult. Does anyone have any experience with this? Thanks.
I purchased 4 properties with financing in the span of about 10 months and didn't see a significant drop in my credit score. The only thing that will possibly affect it is the number of inquiries, since each time you finance, you'll get 1 or 2 added to your credit profile. In my experience, the effect of this is minor and your score will get back up (if it does slightly drop) in a matter of a few months.
Aside from credit score, you need to keep track of your debt to income ratio, because that's what will really affect your ability to get new mortgages if you're using conventional financing. If every property you purchase cash flows, it's not a problem, but if your debt service (mortgage payments) keep increasing, but your income does not, your debt to income ratio will go up. Most conventional lenders will not lend if your debt to income is over 45%.
Investor · Buffalo, NY · Member since 2016 · 668 posts · 209 votes
9y
Congratulations. Keep making good financial decisions as you get your financing in order for these investments and the credit score will take care of itself. Don't sweat the small stuff.
I purchased 4 properties with financing in the span of about 10 months and didn't see a significant drop in my credit score. The only thing that will possibly affect it is the number of inquiries, since each time you finance, you'll get 1 or 2 added to your credit profile. In my experience, the effect of this is minor and your score will get back up (if it does slightly drop) in a matter of a few months.
Aside from credit score, you need to keep track of your debt to income ratio, because that's what will really affect your ability to get new mortgages if you're using conventional financing. If every property you purchase cash flows, it's not a problem, but if your debt service (mortgage payments) keep increasing, but your income does not, your debt to income ratio will go up. Most conventional lenders will not lend if your debt to income is over 45%.
Lender · Denver, CO · Member since 2015 · 404 posts · 227 votes
9y
@Dave Vona From a credit perspective you should not have any issues so long as you are making your payments on time. The impact from inquiries on your credit will likely be minimal. You may see some effect due to age of credit history but probably not enough to take your score down to where you are seeing negative impact in your interest rate.
As @Anton Ivanov correctly stated you will want to have a game plan for how to handle your DTI. As a good rule of thumb, if you take your gross monthly rents from the property you are buying and multiply by 75% and the resulting number is still greater than your monthly PITI plus any HOA payments, you should see no detrimental effect to your DTI for future purchases. This is true in the scenario where you are buying properties in quick succession within the same year. Once the properties are reporting on your tax returns, the calculations that factor into your DTI are slightly different.