Our episode today begins with Henry L. going to his bank with an investment plan to enhance his retirement cash flow. His present situation is as follows:

THE PLAN

His taxable income of $45000 per year, good credit ratings, marketable property in good state of repair will get him the approval for the first part of the plan, the refinancing. Interest rate of 6.5% was used for calculating payments over 15 years. Our applicant is 45 years old.

With the new money, Henry wants to invest into 4 new properties, each selling for $60,000. The overall picture is as follows:

Henry was surprised when his banker told him he did not qualify for the additional debt. He explained to his banker that this venture was self-sufficient. The banker understood however, the computer program for qualification purposes adds only a percentage of the rental income to his $45000 salaried income and accepts only 40% of that income for servicing all of the debt. The computer program also adds expenses for insurance, vacancy and the like. Determined to follow through with his plan, he approaches me to find him the financing. The first part (equity draw from his residence) was easy to achieve, the remainder of the financing we were able to get from an equity type lender, at a higher rate of interest, but still self-sufficient, and amortized over 15 years. At that time, aged 60, our applicant retires. All mortgages against income properties, as well as his residence, will have been paid in full. He will then draw an income from these properties. Unlike having normal investments, having investment real estate, our Investor need not cash in the investment in order to draw the income.

The old adage "money talks" certainly can get you rental income properties. Debt service ratios do pose a problem for the normal applicant, however, if you have useable equity in your residence, you may still be able to plan, despite what the mortgage system says!