Debt to Income Ratio

[Larry Burchett]

Will building a real estate porfolio of positive cash flowing properties lower my debt to income ratio? And thereby limit my ability to purchase a $1,000,000 2nd home?

I own a primary and 3 positive cash flowing rentals. I'd like to add 5 more cash flowing rentals to my portfolio, and then afterwards, purchase a 2nd home beach house. With regard to rental properties in a debt:income calculation, Ive heard you must consider PIMIT, and can count monthly rents at 75%. Following that formula, unless my rents are double my expenses, my debt:income ratio goes up, and after the addition of five properties, may be into the 40s, making a 2nd home purchase difficult.

Am I looking at the correctly? I've also been told that positive cash flow rentals do not increase/worsen the DTI ratio.

Larry

[Joshua D.]

Larry - Here's a fantastic Debt to Income Ratio Primer that we just put out on our mortgage blog. I think you and others should find it to be valuable.