DTI with the BRRRR Strategy

[Brent O'Reilly]

Hello!

I am a homeowner in the suburbs of Cleveland and am about 2 years into a modified BRRRR property. I bought a foreclosure, fixed it up over the past two years while living in it and am now refinancing (cash-out) and looking to rent the property. I'd like to replicate the model and start building a portfolio of rental props, but it seems like my debt-to-income (DTI) ratio will eventually become an inhibitor. The prelim research I've done indicates that traditional lenders look for about 50% DTI to approve a loan.

I have an annual W2 salary from my job, so my monthly income is basically fixed. As I scale the BRRRR strategy, taking on 1-2 properties/year (ballpark), won't my debt eventually eclipse my W2 income and thus disqualify me from additional loans? Or am I able to count rental income in my DTI calculation?

Thinking about it from the lender's perspective, it seems they would not count rental income, seeing as extended vacancy could potentially cause me to default on the loan. But if that's the case, how does anyone scale the BRRRR model? And how do people that don't have a regular salary (self-employed or full-time real estate investors) do it?

Thanks for your help!

-Brent