Buying & Selling Real Estate Discussion

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John Patterson
  • round rock, TX
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How to buy more rental properties with debt to income limited out

John Patterson
  • round rock, TX
Posted Dec 8 2019, 09:27

My current situation:

1 primary, 5 rentals, no additional debt, heloc out (invested in one of the rentals), and cash to buy more, but at 43% debt to income.  I am looking for a solution where I can buy more rentals.  I was thinking of:

A) Giving a family member the cash to buy more, and having them deed me over the house after a period of time

B) Setting up a trust and putting the rentals there, so they are not on my name, and buy more

Are any of these actually viable, or something anyone has actually done?  Open to suggestions as well.  

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Account Closed
  • Rental Property Investor
  • Florida
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Account Closed
  • Rental Property Investor
  • Florida
Replied Dec 9 2019, 13:38

Are you using a big name bank that specializes in investment loans? If not, I would recommend doing so. If your rentals are leased out the lender should be recognizing the revenue and not negatively impacting your DTI.

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Edgar Rodriguez
  • Real Estate Agent
  • Tampa, FL
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Edgar Rodriguez
  • Real Estate Agent
  • Tampa, FL
Replied Dec 9 2019, 19:01

@John Patterson  There are some lenders that will lend on expected cash flow. For example, one lender I work with in Central Florida will lend money for a rental property as long as the mortgage ( taxes and insurance included ) is 90% or less of the expected rent. You must have purchased real estate in the past and you can also purchase directly through an llc which is great.

This comes with obvious drawbacks: interest rate is higher, requires a little more downpayment (25%) and not all lenders offer it. 

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Replied Dec 10 2019, 03:12

@Edgar Rodriguez please DM the name of the lender that lends on expected cashflow. Thanks.

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Chris R.
  • Rental Property Investor
  • Southern NH
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Chris R.
  • Rental Property Investor
  • Southern NH
Replied Dec 10 2019, 05:17

We recently borrowed the cash from friends and family to make a down payment and we pay them interest on the money each month as if they are the bank. We found a lender who doesn't require we put our own money in and the cash flow from the property pays down the investor principle while we pay them interest each month. Our investors beat the market returns with their interest payments and we get a cash flowing rental property.

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Ian Walsh
  • Lender
  • Philadelphia, PA
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Ian Walsh
  • Lender
  • Philadelphia, PA
Replied Dec 10 2019, 05:55

Private money is easy to find . Just make sure you are buying deep because if your DTI is high, you can't save your portfolio on a rainy day.

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Edgar Rodriguez
  • Real Estate Agent
  • Tampa, FL
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Edgar Rodriguez
  • Real Estate Agent
  • Tampa, FL
Replied Dec 10 2019, 05:56

@Churye Tarlue sent you a PM!

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James Maradits
  • Real Estate Broker
  • Cleveland, OH
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James Maradits
  • Real Estate Broker
  • Cleveland, OH
Replied Dec 10 2019, 06:29

There are plenty of "Non-QM" loan products out there available for residential properties. In my experience, most just want to see your credit, bank account/net worth, and that the DSCR of the property will more than cover the loan amount. Expect to pay 1-2% higher interest rate than a traditional bank loan, but it's probably your most viable option without getting overly creative.

Real Estate Agent OH (#2017002328)

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Bob Prisco
  • Specialist
  • Cleveland, OH
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Bob Prisco
  • Specialist
  • Cleveland, OH
Replied Dec 10 2019, 07:09

@John Patterson CASH, then refi 

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Max T.
  • Investor
  • Philadelphia, PA
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Max T.
  • Investor
  • Philadelphia, PA
Replied Dec 10 2019, 09:53

@John Patterson

Buy better deals.

More good rentals will improve your DTI.

If you’re not cash flowing in your tax returns you really aren’t cash flowing!

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Phylicia Dancy
  • Pensacola, FL
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Phylicia Dancy
  • Pensacola, FL
Replied Dec 10 2019, 12:15

@Tarik Turner Why DM? We could all learn from the info.

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Tarik Turner
  • Lender
  • Hackensack, NJ
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Tarik Turner
  • Lender
  • Hackensack, NJ
Replied Dec 10 2019, 12:22
Originally posted by @Phylicia Dancy:

@Tarik Turner Why DM? We could all learn from the info.

 Mainly because the foum doesn't allow you to give quotes or offer products on the public platform.

Feel free to ask me anything you may have on your mind however.

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John Patterson
  • round rock, TX
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John Patterson
  • round rock, TX
Replied Dec 10 2019, 12:24

@Max T. The last 2 years, I completely redid a side of a duplex that I bought which as expenses took me into the negative. This year I had a tenant destroy a house, and it took several months to figure out with insurance, and the difference of the insurance money and what it needed was significant. All of my rentals cash flow quite nicely now, I just need to be patient with the DTI measurement, because I will be able to pull the trigger on more after my tax returns this next year.

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Joe Splitrock
  • Rental Property Investor
  • Sioux Falls, SD
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Joe Splitrock
  • Rental Property Investor
  • Sioux Falls, SD
ModeratorReplied Dec 10 2019, 13:08

@John Patterson I would not under-report your expenses on taxes, because that is considered tax fraud the same as over-reporting.

The way you scale is by adding cash flowing properties. Your income grows faster than your debt service. 

The rehab expense should have been capitalized, so should not hurt short term cash flow. If the improvements were that costly, then you may have over-improved the property. A rehab should increase rents to offset the expense.

As far as an insurance claim, this should not show up as an expense. Only the deductible should be an expense. The income from the insurance payment offsets the repairs.

You may just need to spend a year or two stabilizing your business.

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Zack Leverette
  • Rental Property Investor
  • Macon, GA
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Zack Leverette
  • Rental Property Investor
  • Macon, GA
Replied Dec 10 2019, 19:06

@John Patterson

I would call around to local banks or find a mortgage broker. We use a mortgage broker that uses our cash flow towards our earned income which reduces our DTI. They do require a copy of the lease and verify the money is going into our account.

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David Meier
  • Contractor
  • Denver, CO
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David Meier
  • Contractor
  • Denver, CO
Replied Dec 10 2019, 20:09

@John Patterson Thank you for opening this thread. I am in a very similar situation with my DTI. I will do some research on many of these suggestions everyone provided.

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Craig Jeppesen
  • Rental Property Investor
  • Chubbuck, ID
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Craig Jeppesen
  • Rental Property Investor
  • Chubbuck, ID
Replied Dec 10 2019, 20:23
Originally posted by @John Patterson:

@Marco G. That's what my banker is telling me. I just spoke to my banker again today, and had a great revelation. I was thinking in my mind that I would be tapped out because my DTI is at the top. He's saying that if I buy a rental that can cover all my mortgage, tax, insurance payments (cash flow positive which I only buy rentals that do) I should not be adding to my DTI if I buy right.

Yes this is how it should work, which is why I was asking what your primary residence to your monthly income is because your rentals should not increase your dti if they cash flow. I like to keep the primary 20-28% dti at the most and you should never have any issues. 

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Dennis M.
  • Rental Property Investor
  • Erie, pa
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Dennis M.
  • Rental Property Investor
  • Erie, pa
Replied Dec 15 2019, 02:49

I would work with small community banks if you insist on taking on more debt to keep going otherwise you could do owner financing deals . Some of the best deals I get are by going right to the bank president to get a 0% loan and this person is the seller ! Creative financing is a fantastic way  to build a portfolio with little money and credit