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If I have 2 houses, and rent out both of them for $4,000 each, then the bank will take into account the rental income of $8,000.

But if I live in one and rent out the other, the bank only accounts for $4,000 of rental income. (The bank doesn't consider my rental expenses, but if I rent my own house out, the bank considers the extra income).

Is it true that having rental income of $8,000 rather than $4,000 will help me secure a loan for a third house?

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    All of your examples are for very rich people: high incomes and expensive house. You should have a CPA and lawyer on retainer.
    – RonJohn
    Commented Nov 26, 2019 at 5:06
  • I mean, it might be over 10 or 15 years. And maybe the CPA will tell you, yes, rent instead of living in your own house. I wonder why there is always this suggestion when a proper question is posted: Go Google it, or consult a CPA and lawyer. Isn't Stack Exchange supposed to be (1) a possible destination when people Google for the answer and land here, and (2) provide help to people without always consulting a CPA, or at least as a starting point
    – nonopolarity
    Commented Nov 26, 2019 at 5:59
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    What "might be over 10 or 15 years"? And "why there is always this suggestion when a proper question is posted"? Because the questions are improper. They have a veneer of reasonableness but the numbers are all so high that the only proper answer is "go talk to your accountant".
    – RonJohn
    Commented Nov 26, 2019 at 6:03
  • you mentioned it might be for "very rich people", but this process of buying 1, 2, or 3 houses might be over 10 or 15 years, so it is possible that a middle class person or couple can do it. So you are saying there is for sure no definite answer if you ask an accountant. If you ask one accountant, he or she may tell you, "no the bank / mortgage lender considers your expenses too, such as rent", and if you ask another accountant, he or she may tell you a different answer, so there is no definite answer
    – nonopolarity
    Commented Nov 26, 2019 at 6:23
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    It sounds like you're trying to determine the impact of renting or buying your own primary residence on your chances of getting approved for a loan for income property. You're asking about one specific detail without considering the whole picture. This makes it a little challenging to answer directly without wading through an explanation of typical underwriting practices for income properties. Maybe you could flesh out your question with more details on your financial plans and/or what other parts of the process you already understand (or not).
    – dwizum
    Commented Nov 26, 2019 at 14:23

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But if I live in one and rent one out, the bank only considers me having rental income of $4000. (The bank doesn't consider my rental expenses, but if I rent my own house out, the bank considers the extra income).

Actually they will not credit you with rental income of $4000. They will assume that you will sometimes have months where the property is not rented. They will only estimate that you will get rent 9 of 12 months, so they will asses the average monthly rent received as $3000.

Of course they will know that the mortgage has to be paid each month, along with the taxes and insurance. They also know that you can have other expenses that have to be considered. This may mean that the bank looks at each rental property as a net drain on your finances each month if those properties have loans.

The bank does consider what you pay for the place you live when considering you for the new loan. Every loan application I have seen has a space for your monthly "rent". They then ask if it is rent, or a mortgage payment.

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I did this with my first three properties -- I bought them as owner-occupied, lived there for 1-2 years while fixing it up, then converted it to a rental and moved (literally) to the next deal. In order to qualify for a loan on my next property, I simply needed a signed lease that my current home would be rented at a certain rate. A rental history was not needed. Your area may be different.

As always, a good local lender is going to be able to help you in your particular situation to find your best option(s). If you will be doing much in terms of real estate investing I would certainly recommended building a relationship with a good lender.

Here's a little more unsolicited advice, it may make sense for you to refinance your property after you have it fixed up. Take a look at the BRRRR method, if you're not already familiar with it:

https://www.biggerpockets.com/blog/brrrr-buyrehabrentrefinancerepeatprimer

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