Should i get an expensive first rental property?

Question

So, i am a recent college grad and just moved to Chicago. My girlfriend and I are going to be getting a condo hopefully by next year. I was lucky enough to find a good job after college and can possible afford a 100k downpayment by next year.

I would like to start investing, however my girlfriend wants to buy a nicer condo instead. We compromised and agreed upon getting a 4-plex, living in one and renting out the other three. Chicago's market is very expensive (for me at least) and my girlfriend has very expensive taste as well so the cheapest place i have found was 800k for a 4-plex.

Would i be able to continue to invest in cheaper apartments if i still have over 600k left to pay off on my 4-plex? I obviously plan on having the other 3 units rented out. Im just not sure how it would work out if i had a high debt to income ratio even if i had all three units rented out.

Thank  a lot for your insight guys!

Jerry W. · Answer

@Mark Johnson, there is a lot going on here and I cannot explain it all quickly so this is the condensed version.  First you must be a landlord for a while before bankers will add in the rental income to determine your income for making loans.  So if you buy the 4 plex you will likely be unable to buy more until you have seasoned it by owning more than 1 year and having it show up on your income taxes.

Next your DTI does matter.  The amount you earn from your day job will have an effect also.  If your mortgage payment is $5K a month and the income is $6K a month it will probably hurt you ability to get another loan.  If the mortgage is $2K a month and the income is $8K a month you can probably get more loans.

The more expensive you buy a place for now, the harder it will be to buy another in the future unless it really cash flows well.