Does somebody know a lender who is prepared to include the rental income in the TDS ratio calculation?

XavierCP

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#1
In my understanding, it's critical for a real estate investor to find a mortgage broker or banker who is prepared to include the rental income in calculating the TDS.

TDS formula = Total Debt Service Monthly Payments / Your Monthly Income
As we invest in more properties, part of the wall we may hit is this TDS obstacle (to have more mortgages) but in my understanding, it won't be the case if the lender includes the rental income in calculating the TDS.

Also the 110 Percent Rule as explained by Campbell, Don R.. in his book "Real Estate Investing in Canada" (p. 178). Wiley. Kindle Edition.

Once you have three properties, certain banks will consider your properties as a portfolio, and will analyze them as a group. They are looking for one key number—the number 110. They want to see rents that total 110 percent of debt expenses (mortgage payments + property taxes + condo fees). If they do see 110 or more, they no longer include these mortgages into your personal debt service calculation. And suddenly, your debts-service ratio drops dramatically, leaving you with the option to purchase many more properties.
Am I right to think like that? So it's fundamental to invest only in properties which will bring positive cash flow to grow our properties' portfolio?
 

Mr.Montreal

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#2
Hi Xavier,

I have 3 properties with >1.1 (or 110) ratio. The bank I deal with does look for that number in order to validate if your properties are performing and they do include 80% of rental income in the TDS calculation. However, they do not disregard my mortgages when performing their calculations. I have not verified this at many banks yet. It is one of my next steps.
 
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XavierCP

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#3
Hi Xavier,

I have 3 properties with >1.1 (or 110) ratio. The bank I deal with does look for that number in order to validate if your properties are performing and they do include 80% of rental income in the TDS calculation. However, they do not disregard my mortgages when performing their calculations. I have not verified this at many banks yet. It is one of my next steps.
Thank you Mr.Montreal for your answer, it's really helpful in my real estate investment journey.

Like Don R. Campbell writes in his book Real Estate Investing in Canada (p. 179) about the 110 Percent Rule:

This rule is specific to certain banks. It is only understood by sophisticated investment property mortgage brokers and changes continually.
So I guess it's our duty as a real estate investor to find these bankers or mortgage brokers who understand that rule to let us increase our portfolio of properties.
 

XavierCP

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#5
Building a portfolio is not just knowing a few basic rules, you must be strategic. Based on your comments, it appears that you tailor them to new investors. If you have not read this book, get it. The Canadian Real Estate Action Plan
Thank you Alvaro,

I do not tailor the rules or strategies, I try to apply the ACRE (Authentic Canadian Real Estate) system taught by Don R. Campbell (Cofounder of REIN - this network) from his book "Real Estate Investing in Canada".

There's so many factors to analyze, I am taking them one by one and exchange with members on this forum to help me understand the ACRE system better and have different opinions.

Thank you for the book suggestion, I bookmarked it!
 

Willyboy

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#6
He doesn't need a book for this. It's not that complicated. All he needs is 30-45 minutes with a specialized portfolio mortgage broker. I don't know mortgage brokers in Quebec but they can be found with some research.

Books are good though for general knowledge and it won't hurt to buy a book but just to learn how to build a portfolio it's better to sit down with a mortgage broker.
 
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