How to Calculate Debt to Income Ratio for Rental Property Mortgages

Calculating the debt to income of a rental property deal is generally an effective way to determine whether you can afford it.

There are numerous metrics for trying to determine if you can afford a rental property. Banks use the same metrics to decide whether they will approve or deny your loan for the property. Figuring debt to income is an effective measure to determine how much of a loan you can afford to take out on a particular rental property.

Things You'll Need

• Calculator or spreadsheet

Instructions

1. Determine the total income of the property. For rental properties, this is your monthly income multiplied by 12. Let's say your monthly rental income is $10,000, which means your annual income is $120,000. This is your gross annual income.

2. Determine your debt load. This is not the amount on your loan statement, but rather the "payoff amount" for all loans and lines of credit associated with the property. Let's say you have taken $50,000 out on a $100,000 line of credit on the property, along with a mortgage debt of $20,000. The total debt is $70,000.

3. Divide the total debt by the total income amount for the debt to determine the income ratio on the property. In this example, the final ratio is .58 ($70,000/$120,000).