Rental Property’s Affect on Borrowing Power

I read the bigger pockets article how one guy went "from $0 net worth to qualifying for $1mm loan in 2.5 years" and had a quick question on how rental income affects your borrowing power.

From this quote: Additionally, in your case, your current mortgages do not count against this income because the payments, including principal, interest, taxes, and insurance, are wholly offset by the rents your current properties receive. In fact, because we allow 75% of the gross rents your properties command to count towards your income, your current properties actually increase your ability to borrow."

It sounds like he's saying 2 things are happening at the same time – 1 – the mortgages aren't factored into the debt part of the DTI ratio and 2 – 75% of gross rents count toward income in DTI ratio.

To throw some numbers at this, let's say I have two properties, one rental and one primary residence. I just moved into the primary residence with a mortgage of $1950/mo and am renting out the rental for $2k/mo on a mortgage of $1300/mo.

In 2 years, what will be my borrowing power? My DTI sits at 45% with these two properties. The quote sounds like not only will the first mortgage of $1300/mo be excluded from the debt in the DTI, but I will be able to add $1500 to my income (2000*.75=1500) as well to the income part of DTI.

Therefore, if my current DTI is 40% (1300+1950)/8200, this is saying my new DTI will be 20% 1950/(8200+1500) in 2 years.

Meaning I could afford an additional $2400/mo mortgage at that time to get me back to 45% total. That would be a 380k house on top of my current two, leading to about 1 mm in loans, correct? But this article sounds like the writer is able to ADD a 1mm loan to his existing rentals, which is the part that confuses me.

More real estate tips at Program Realty Wix site


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