How to calculate Debt to Income

Question

Below is a snap shot of a P&L on a potential investment property. How exactly is D/I calculated. I'm confused

Is it PITI/(.75*2400)=(1246/1800) which is 69%? Is the D/I something else?

Craig Jeppesen · Answer

Use your $434 and add back vacancy and maintenance reserves. Those won’t hit your tax return.

Austin Bright · Answer

@Craig Jeppesen

Will vacancy and mtx be added back?

Austin Bright · Answer

@Craig Jeppesen

Ok. Thanks.

So for my purposes, would the $434 from my screen shot be my "net rental income" (assuming 0 income tax). I would then add back the write offs to arrive at the income to use for dti plus my salary?

Craig Jeppesen · Answer

The problem is banks just don’t look at your rental. They are not calculating dti on each property. It is one ratio and it includes all of your monthly debt payments like your personal mortgage and min credit card pmts. Here is an example of how it would be calculated:

Austin Bright · Answer

@Craig Jeppesen I realize they won't use exactly what is listed here. I'm trying to get an idea using these numbers because I am very confused right now. Using these numbers is the D/I about 69% Or a better way to answer the question I guess: Should my after tax cash flow be greater than my mortgage to keep my investment strategy. For example, if my PITI is 1200, should my property be cash flowing at 1201 or greater?

Craig Jeppesen · Answer

Dti takes the total of all your monthly debt pmts divided your total monthly income. For your rental piece the bank will include your PITI on the monthly pmt part (numerator) and will use your tax return for the income piece usually taking your taxable income and backing off depreciation and sometimes other non cash items like mileage you deducted. The document you provided will not be used normally.