What is described here (buying a chain of properties year to year) is unlikely for most people. You can’t use rental income when calculating your debt to income ratio. Unless you have a massive income or an equally massive pile of cash, you are going to quickly run out of lenders willing to lend to you in your entirely over-levered position. Also, you have to stay in a home for a certain number of years for it to be considered a “primary residence” and therefor able to be mortgaged with a low down payment. Otherwise in each transaction you’ll have to come up with 25-30% down.
1. With a lease and/or two years of prior landlord experience you can use rental income both for existing and projected for new property.
2. For multi unit, if you’re owner occupied you qualify for FHA and therefore can put down as little as 3%
3. You only have to stay in your home for 6 months for refinance and 1 year for initial purchase. The guidelines are loose, and can relocate earlier depending.
That being said, it doesn’t really make sense since most properties in high cost of living areas don’t cash flow well to begin with.
Having purchased a multifamily recently I can confirm all of these are true.
I bought during the plummeting urban Covid rents. When looking for my mortgage a few banks told me their underwriters were temporarily directed to ignore all building income toward qualification.
I worked with a good mortgage broker and he had the option of 20+ banks that were happy to write a conventional loan using a ratio of the building’s income counting toward my qualification. I believe it was 80%.
Re: cash flow, I live in half the building, at current rents the two tenants pay 84% of the mortgage tax and insurance. The tax write offs more than make up for the rest.
> "You can’t use rental income when calculating your debt to income ratio."
Do you have a source for this claim? Based on personal friends who work in the lending / single family rental home space, I don't think that's correct. [0] [1]
If that's actually the case, and many of those mortgages are adjustable-rate, then we've learned nothing and another 2007 may be inevitable.
Fortunately, I still believe that the overwhelming majority of new rental units are being scooped up and placed on market by commercial entities, not individuals. You may have many individuals putting their second house up for rent, but I'm skeptical that banks are giving individuals a half-dozen loans in series. With the housing shortage as bad as it is (we're just not building enough to offset our population growth), I suspect that commercial entities would swoop in and buy up most second houses that individuals couldn't maintain anymore.
