So I'm pretty clear on my general buy and hold portfolio strategy in single and small multi family (at least for now). What is not yet clear to me is how I continue to grow after the first few deals.
The main obstacle I haven't worked out yet is that once I get beyond my first few deals and A and B lenders start saying my debt to income ratio is too high or total debt is too high, how do I keep adding to my portfolio?
Even if I was doing perfect BRRRRs and have the cash to purchase available, how do I refinance out? Is there something I am missing so that I can keep putting mortgages onto new properties and keep growing?
thanks in advance for your insights folks!
If your rental property total expenses (principal, interest, taxes, insurance) are 75% or less than rents then the properties will actually decrease your DTI, because lenders will count that much income.
I have accumulated a number of properties through the BRRRR strategy. I decided early on to utilize commercial financing. It's a little more expensive but no DTI or seasoning. It works great and I use 5 different banks. Properties must cash flow and show a minimum of 1.25 DSCR. Need to own it in a LLC or other entity.
your DTI should improve as you go, not get worse.
@Layton Gilbraith as mentioned above, your DTI will not increase in the eyes of commercial lender and some residential lenders will also consider your rental income as part of your income so your DTI should actually increase as Alex mentioned. You need to find a commercial lender in your area so you can get loans with your LLC.
Thanks for your insights folks. It sounds like at some point a move to commercial lenders becomes essential. I'm in Canada, so LLCs aren't really a thing here and the benefits of incorporating in Canada to my knowledge have mostly been nerfed.
This gives me a good idea of what kind of questions and people I need to be talking to next to continue growing.
Many thanks all!
@Layton Gilbraith When I structure a mortgage for my clients that are buying their 3rd etc property, I know which lender to use once I know their income to debt ratios. Generally a mainstream lender's rental calculations are not in a borrower's favour, the good news is that there are lenders that use 80%-85%-100% offset for non-subject rentals, this may the route to take.