As soon as you start to acquire some rental properties, you will realize that understanding how to finance more acquisitions is extremely important.
Getting access to capital has gotten more difficult in the recent downturn and on a micro level it is indicative of why it is difficult to turn the economy around. There are good buying opportunities but investors can't get the financing to purchase them.
One calculation that you have to be aware of is your debt/income ratio. This calculation compares your monthly debt payments to how much income you make. Most lenders won't let this go above 36%.
You have to include in your debt payments the principal, interest, taxes, and insurance for the home plus car payments, student loans, credit card payments and other recurring debt.
This ratio could make it pretty difficult to buy more than a property or two as an investor because the PITI (principal, interest, taxes, and insurance) payments will be great than your income. However, once you have two years of rental income on your tax returns that money will be added to your income in the debt to income ratio. This means that you can borrow more because you have more income. It is helpful to be able to show that your future purchase will have positive cash flow as well to please the lender.
Take this ratio seriously and make sure you can pass these requirements and you'll be ready to add more properties to your portfolio.
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