Meeting Back Ratio With 5 Fig Salary
Hello, need help on understanding how investors with many properites can meet the "Back Ratio" requirement of 0.40 or less without earning lavish salaries. For example if one currently has three properties with total debts (PITI, HOA, prop mgt) totaling $7k/month and rental income at exactly $7k/month, how much gross income would be needed to qualify for a 4th property which will increase total debts to $8k/month and increase total rental income to $8k/month.
If I understand Back Ratio correctly, total debts would then be $8k/month and rental income would be credited as only $6k/month with lender imposed 25% reduction. Hence to meet 0.40 back ratio, gross income would have to be $20K/month (8k divided by 0.40 = 20k). To make $20K/month, the investor would need to augment their $6k /month of credited rental income with $14K/month of salary ($168k/year). Does this sound right? So, even if all three properites are neutrally cash-flowing, one still must gross 2.5X (1/0.40) of your projected total debt in order to meet a Back Ratio of 0.40?
Thanks for your help! :-o $168/year
Keep in mind that this site is "the creative investor". You are thinking traditionally. Getting the owner to finance the property through either a L/O or Sub2 are just a few of the many potential non-traditional approaches.
What I have found is that if the deal is bought "right", financing will not be an issue.
Just my 2 cents.
GA_John
Thanks for the tips on working outside "the box". I guess the creative solutions come up when these traditional roadblocks are encountered.