Rental Worksheets: Unlock Higher Borrowing Power for Real Estate Investor Clients
In this episode, Scott Dillingham explains how certain lenders allow 80-100% of rental income in their calculations — instead of the standard 50% — potentially qualifying clients for hundreds of thousands more. Scott…
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Show notes
If your investor clients have been told their debt ratios are too high, a rental worksheet could be the solution they have never heard of. In this episode, Scott Dillingham explains how certain lenders allow 80-100% of rental income in their calculations — instead of the standard 50% — potentially qualifying clients for hundreds of thousands more.
Scott breaks down the math with a clear example: if you rent a property for $3,000 per month with basic expenses of $2,200, you might assume you have $800 in monthly cash flow. However, when lenders apply the 50% rental income rule, they only count $1,500 of that rent, showing a loss of $700 on paper despite the property generating real profit. This discrepancy between actual cash flow and calculated income is what causes many investors to hit artificial walls in their mortgage applications.
The rental worksheet solution changes everything for portfolio investors. Rather than using the standard 50% add-back method, specialized lenders with rental worksheets can use closer to 100% of rental income in their calculations. The worksheet compiles all properties in an investor's portfolio, calculating the true surplus or deficit across the entire portfolio. When there is positive surplus income, it gets added to the borrower's regular employment income, significantly boosting qualification amounts.
Scott shares a real client example where the rental worksheet approach made all the difference. This client was easily approved for a mortgage through LendCity's specialized program but was subsequently declined for a simple credit card because the credit card company used traditional debt ratio calculations. This demonstrates how powerful the rental worksheet approach can be compared to standard underwriting methods used by most financial institutions.
Not all lenders offer rental worksheets, and those that do each have their own proprietary formulas and expense calculations. Some lenders will use more favourable calculations than others, which is why working with a mortgage broker who specializes in investment property financing matters. A broker experienced in rental property mortgages can match investors with the lender whose worksheet provides the best qualification outcome for their specific portfolio.
For realtors working with investor clients, understanding the difference between standard rental income calculations and rental worksheet programs is essential. When clients come to you frustrated because they have been told their debt ratios are too high or they have too many properties, connecting them with the right mortgage professional can turn a dead deal into a closing. LendCity Mortgages specializes in investment property financing and has access to multiple lenders with rental worksheet programs designed specifically for portfolio investors.
Key Takeaways
- 50% Rental Income Rule Creates False Shortfalls: Most lenders only count half of your rental income when qualifying for mortgages, which can show paper losses even on profitable properties and artificially limit borrowing capacity.
- Rental Worksheets Use Up to 100% of Rental Income: Specialized lenders with rental worksheet programs can calculate your true portfolio performance, adding surplus income directly to your qualification and dramatically increasing purchasing power.
- Each Lender Has Different Worksheet Formulas: Not all rental worksheets are created equal, and different lenders apply their own expense calculations and income percentages, making lender selection critical for optimal qualification.
- Bank Property Limits Can Be Bypassed: Many banks cap investors at five financed properties, but mortgage brokers can access lenders with higher limits and more favourable rental income treatment for portfolio investors.
- Debt Ratios Are Not the Final Answer: Being told your debt service ratios are too high does not mean you cannot qualify. The right lender and the right calculation method can completely change your approval outcome.
- Investment Property Specialists Make the Difference: Working with a mortgage professional who focuses on real estate investor financing ensures access to programs and lenders that general mortgage agents may not utilize.
Links to Show References
- LendCity Mortgages (Investment Property Financing): lendcity.ca
- Current Mortgage Rates and Pre-Approval: Available in show notes below episode
- Contact LendCity for Rental Worksheet Analysis: Visit website or call for consultation
- (00:00) - – Introduction to Rental Worksheets for Investors
- (00:26) - – The 50% Rental Income Rule Explained
- (01:26) - – Real Client Example: Mortgage Approved, Credit Card Declined
- (02:20) - – How Rental Worksheets Calculate True Portfolio Income
- (03:22) - – Why Different Lenders Have Different Worksheet Formulas
- (04:35) - – LendCity's Investment Property Specialization
- (05:15) - – How to Partner with LendCity for Investor Clients
Realtor questions from this episode
What is a rental worksheet?
Scott explains that standard lenders use only 50% of rental income when qualifying a borrower, which can show a loss on paper even when the property cash flows. With a rental worksheet, the lender takes the full rent, subtracts the mortgage and expenses, and adds any surplus to the borrower's income.
Why are some investor clients told their debt ratios are too high?
Scott says that when a client applies to a regular lender, only 50% of the rent counts, so the property looks like a monthly loss. He says rental worksheets are a way past the "debt ratios are too high" answer. He also notes that some banks cap the number of properties, in some cases at five.
Why don't more brokers use rental worksheets?
Scott says it takes time to fill out an Excel sheet and every lender has its own worksheet with its own formula and expenses, so results are better at some lenders than others. He says LendCity uses them all the time.
Transcript
Transcript of the episode as recorded. Rates, fees and program details are as stated on the recording date and may have changed.
Welcome back to this episode of the Close More Deals podcast.
Welcome back to this episode of the Close More Deals podcast. Today, I'm gonna be talking to you about rental worksheets. So the purpose of this is because what happens is is if you have an investor client and they're buying rental properties, if you just let them loose and they speak to the regular lender, in most cases, that lender is only gonna use 50% of the income. So if that's the case, right, and you're renting a home for 3,000 a month and your mortgage is 2,000, and let's just say your taxes are 200 a month.
Right? So your your expenses are 2,200, obviously, excluding vacancy, repairs, and maintenance, all that stuff. I'm just talking basic expenses for 2,200. You rent it for 3,000. Right? Normally thinking we have $800 a month cash flow. However, not so. Not the way that the banks look at it. So most often, if they're using 50% of the rental income, they're using 1,500, which is then showing them you have a loss of $700 per month on the application. So that is not a real life loss, but that's how they calculate it.
So what what happens is is clients end up going to banks or or other lenders. It's it's not even banks like it's it is banks, but it's it's all the lenders. And they end up hearing, oh, you're maxed out. Your debt ratios are too high. So we had, I'll give you a perfect example, actually. Credit cards is one of the easiest things to get approved for. Right? We all know this. They they issue them out like candy. They don't really look at your income.
You just kinda tell them over the phone. Sometimes they might check, but the most part, it's like you tell them over the phone, they check your credit, and you're approved. Right? As long as you don't have anything terrible on there. So I had a client who it's it's actually gonna be closing in a couple weeks, but we got him approved. And he said that, he wanted to get a credit card and charge about $10 worth of expenses for new appliances and stuff like that.
And he asked me if it'd be okay.
And he asked me if it'd be okay. And I said, yeah. It's okay. Do it. Like, it's no problem. He went to get the credit card, and he said that they declined him actually because of debt ratios. They said his his debt ratios were too high when he went over stuff, like, over the phone with him. So the thing is is the reason I was able to get him approved is I used a rental worksheet on his existing portfolio, which allowed me to almost use a 100% of the rental income.
And then what happens is the surplus we add as his income. So we kinda, like, take all of his properties and erase them so we're not looking at the, you know, expenses or whatever. And if there's a surplus of income, we add it into his normal income. So it just greatly increased his purchasing power so much so that the mortgage was easy and a credit card was hard. Do you know what I mean? That's funny when you think about it. That's actually funny.
But that's how this program works. So the the point of this is is not all lenders have these rental worksheets, and most brokers don't use them. It takes time to fill out an Excel sheet. And every lender, they have their own. It's not like it's like a just one generic one. It's literally every lender has their own. They all have their own kind of unique formula. So even though it's not quite a 100%, some lenders will use a little bit more than others.
We do input a 100% of the rent on the rental worksheet, but they have their own expenses, that they use, and they calculate into all of this. So sometimes, like I said, it it works better at certain lenders than others. But we use this all the time when clients come to us and say they were maxed out. That that's like that happens all the time. I'd rather they had too many properties or their debt ratios are too high. So the rental worksheet is a beautiful way to get past the debt ratios are too high.
If it's, you know, property, you know, I have too many properties,…
If it's, you know, property, you know, I have too many properties, Again, it's probably that bank. Most banks have a five limit. Some banks have a five limit whether you've got those mortgages somewhere else or at that bank, where other ones, it's like five with them. So you could come to them. You could have a couple already, and then it's five with them. So if you already have that, they could be telling you that. So this is why for an investor, especially an investor, right, we're here promoting the the show and always saying like, hey, like, reach out if you need help.
We have all these programs, but if you look us up, we are absolutely geared and focused on the real estate investor. Not that we're not for homeowners. We have dedicated people on the team that work for home like, first time homebuyers, but we are investors, and this is like this is our number one niche is investment property. So we will blow the competition out of the water when it comes to rentals. And you, if you partner with us on this, you're gonna close more deals on your rentals.
There's other things that we do, other tricks of the trade, and I don't wanna ruin our secrets and put it out there for everybody to know. But we do a lot of unique things that help. So if you have a client who's being told their debt ratios are too high and they wanna buy rentals or even they wanna buy their primary home and they have existing rentals, I'm telling you, we've got the best program for you, and we will help make this a success for you.
So give us a call. The details will be in the show notes below as well as updated rates and all that good stuff. So check there. But, of course, please let us know if you have any questions. If this episode added value, please share it with your your REALTOR® friends, your clients, anybody. We wanna help spread the wealth about all these amazing special programs. Thank you so much. Have a great day.