Does is specify W2 income or just income?

The bank just wants to make sure you can cover, hence the W-2 requirement. Your earning ability is all that matters to them, not your tenants.

If we've learned anything from the financial meltdown, it's that not everyone is meant to be a homeowner. You can thank the big mortgage lenders for your woes. Countrywide, as well as many others, wrote mortgages they knew were likely to default. Lehman and Bear Stearns (along with plenty others) bought those notes hand over fist and packaged'em up into nice, tidy, and supposedly safe derivatives. You know how the story ends. :)

I have no problem with investors using real estate to make money as long as they use their own money to fund the venture. ;)

Dodd-Frank itself isn't the issue unless the bank interprets it in a particularly strange manner. He's not borrowing against one of his residences (primary/secondary/vacation) -- he should be looking for a commercial mortgage against the rental property. Yes, there are banks that will loan on commercial terms against a residential rental.

Investment income other than W-2 can be considered (including that from rentals, I'd suspect), as can equity in other properties than the one being loaned on.

See: An Overview of the Consumer Financial Protection Bureau's Ability-to-Repay and Qualified Mortgage Rule | Business Law Section

"The Ability-to-Repay Rule, Regulation Z Section 1026.43, requires that a creditor make a "reasonable and good faith determination at or before consummation that the consumer will have a reasonable ability to repay the loan according to its terms." The creditor must follow underwriting requirements and verify the information by using reasonably relied upon third-party records. The rule applies to all residential mortgages including purchase loans, refinances, home equity loans, first liens, and subordinate liens. In short, if the creditor is making a loan secured by a principal residence, second or vacation home, condominium, or mobile or manufactured home, the creditor must verify the borrowers' ability to repay the loan. The section does not apply to commercial or business loans, even if secured by a personal dwelling. It also does not apply to loans for timeshares, reverse mortgages, loan modifications, and temporary bridge loans.

The creditor must consider and evaluate at least the following eight factors:

Current or reasonably expected income or assets. The creditor may consider borrowers' assets and income that borrowers will use to repay the loan. The creditor may not consider the value of the secured property, including any equity in the dwelling. Because of seasonal work, or other factors that result in variable income, the creditor may consider current income and "reasonably" expected income. A creditor may also consider a joint applicant's income and assets.

Current employment status. The creditor must consider borrowers' current employment status to the extent that the creditor relies on the employment income to repay the loan. If borrowers' intend to repay the loan with investment income, employment need not be considered."

This being said, if this slows the property market waaaay down and causes it to give up the gains of the past year and a half, then I'm all for it

As to the investor with $5 million of paid-off properties, shouldn't he be pulling in a healthy income of at least $200-250k?

They rent.

- Peter.

Being a landlord isn't "using your home as a cash machine." It's renting out an item of commercial property for a profit, basically providing a service. Same as car rental, equipment rental, hotel rooms, etc.

The people who screwed up weren't typically landlords. They were "investors" who were hoping for appreciation in value alone to make them money. As written, Dodd-Frank *does* allow for loans to landlords who can document their rental income, just not to investors who buy a $200k house for $300k in the hope that it will bubble up to $500k in three years.

That's the kind of thing that burned the property market in your fair city, and it's good that Dodd-Frank is putting the brakes on that.

Yes. Hatty never mentioned landlords in his OP. He specifically said "investors" were screwed...

- Peter.


- Peter.

Whether or not one agrees with the law, it's a great example of why this or any law sometimes have unfortunate consequences for people who are honestly trying to make a living.

You're parsing words. He is an investor. His investments depend on rental income. That makes him a landlord.

I have been fortunate to associate myself with a gentleman who is very good at acquiring properties and keeping them rented out. It is pure capitalism in the best sense of the word. It takes cojones and vision to do what Hatty does. it sounds trite to say it, but that's what drives America.

In my experience, limited as it may be, commercial property is much easier to cash flow than is residential. I don't understand how residential real estate works unless you are buying, improving, and selling.

There are quite a few residential properties that will rent at 8-10% cap (i.e. $8-10 annual income for every $100 paid) in areas with reliable tenants. You won't find them in immediate downtown areas of major cities, but they're available if you look and are willing to put in a bit of hand work.

Someone has to provide rental housing and buy up all the distressed inventory from banks.

People like me provide a very important service to the market, we take distressed properties, reposition them, and bring them up to market value. I have taken a number of old houses which were a blight on a good neighborhood, tore them down, and rebuilt nice new houses. Everyone's property value is protected and new people move in.

That's essentially what I'm doing, I'll shoot you a PM later with more specifics. Residential mortgages are cheaper but their guidelines are to strict for most investors. For example they don't count rental income for one year. Well unless your business isn't really growing, you can't wait a year to move equity around.

I have a working relationship with the bank I use now, last year I did half a dozen construction notes with them.

That's because there's a housing bubble and houses are priced above their value as rental properties. The Economist had an interesting article on this a year or so ago looking at various places around the globe where the problem existed.