Got a great question from our community
on debt to income ratio and what do you do to go about increasing it, enhancing
it, improving it? I’m Kris Krohn here on Limitless TV and today we’re going to break
down the science of how you get yourself a real sexy debt to income ratio. Alright, there’s a lot of people out there that are wanting to know, how do I
improve my debt to income ratio? First of all, if you’ve ever talked to a bank and
they threw that language at you, let’s just make sure that you understand what
it actually means. There’s an amount of money that you’re making and that’s your
income but as you acquire a debt, that revolving debt has payments that are
owed like if I bought a car and I had to had a $500 payment, well, I might be
making $5,000 a month but the banks are going to say, yeah, but what’s your debt to
income ratio? We want to know how much money you really got to play with based
on the financial choices that you made. That car is costing you $500 months so
even though you’re making $5,000, it’s more like you got $4,500.
Well but I also have this house payment that’s $1,500 a month. Well then
you’re not really at $4,500 now you’re more $3,000, right? And
the bank really wants to, they’re trying to get to the end of, what do you really
have discretionary to play with? They want to know whether you’re a good,
am I making a good decision? Based on that, you’re watching and searching for a
video like this, make sure you subscribe, we’ve got lots of cool real estate
topics we talk about here and how ultimately to become financially
independent through real estate but in today’s video, let’s just really drill
down on how you reduce your debt to income ratio. We now know that it’s made
up of, I can change it in a number of ways, look at the two levers, I’ve got
my debts and I got my income so for example, if you pushed and got a raise at
work, then your income would go up higher and if your debts didn’t change then
that ratio would change and the banks would say, oh, you’ve got a better income
ratio against your debts. Similarly you could actually say, wow, you know, I’ve got
three credit cards that I’m paying on and one of them has high interest and I
was just paying them all off together and as you’re paying them down, it’ll
improve your debt to income ratio but part of that did to income ratio that
banks will often look at but not tell you is like what are your interest rates
so you might want to say I’m going to start snowballing some of my extra
money and consolidating my debts by paying off just this one high interest
rate credit card, okay, that’s going to improve your debt to income ratio. You
might have a philosophy that says, hey, I’m putting away $500 a month in savings
or right now, I’m electing to put more money in my 401k but if you need to
improve your debt to income ratio, you can allocate that money to reducing your
debt and that’s going to make your income look better to your debt so
ultimately, there’s really only two levers to pull on, one of them is income,
I can make it go up the other one is my debts and I got to try to make them go
out and so as you’re playing with that, ultimately, the goal is, how do I
focus my discretionary income on my debts and if you’re going to do that anyway,
do it on your high interest debts anyway, and what that’ll do is that’ll help open
up a margin. Now I want to share something with you as a little bonus
material here. When you buy an investment property, hope the bank’s going to say yep,
he’s got, look at his credit, he’s got this other house, wow, he’s got even more
debt but the banks will let you actually take the rental contract income and put
it on this side of the fence with your income so here’s what that looks like if
I had $5,000 a month as making but then I bought a rental property, it was costing
me a thousand a month, my debts went up a thousand but if I’m
running it for $1,500, my income went from $5,000 to what? $6,500. It’ll actually do
more than just cancel out. My debt to income ratio can improve as I buy
investment property so if you’re watching this video, there’s a good
chance that you want to get an investment game and you’re trying to get
your ratios right so you can qualify personally for more and if that’s the
game that you’re playing then understand that if you can play it well enough to
get your first property, that that investment property will actually widen
the gap and make it easier for your second property, for your third property,
for your fourth property and then you step into a different set of rules which
are how many homes and how many rapid acquisitions will the banks allow you to
play by. Now I just got to throw this out as an additional bonus. If you’re
watching this you know like, oh crap, Kris, I did the math. At the rate of my
discretionary income and the banks are telling me I need to eliminate $1,200
of debt to get a ratio to buy a house then you’re thinking,
I’m only saving up $500 a month, I can put to that, that’s 24
months, I don’t want to wait 2 years, can I go faster? If you’re talking
about investment real estate, you do that through a credit partner not
even a full-on financial partner. A credit partner gets paid maybe 10% 15% 20%
for just renting their credit that has already the existing debt to
income ratio and so what’s better, waiting 2 years before the bank will
let you or get in on the deal right now but give away 10% 15% 20% of the
profits? If you understand the velocity of money, it’s going to make sense every
single time to bring on a credit partner so you’re watching this video
because you want to know how to game the banks at their system and you
should do that but just know that the moment you get a snag that you can’t
overcome, the good news is is that there’s ways of dealing with that which
is getting a financial partner, a credit partner and so there are ways of working
around it. Ultimately work on those two levers and
just figure out, what’s my plan for reducing my debts and what’s my plan for
increasing my income and those are the two levers that will help
you alter your debt to income ratio. I get it, debt to income ratio, it’s not the sexiest
conversation but you know in the real game of life in business and industry,
there are certain things that you really need to know to make sure you’re being
as smart and intelligent as possible. There’s all sorts of other things that
are important to know in that game are real estate and if you want to work with
a professional team that knows the numbers, knows the math, works with a
dozen different banks and can work with more flexible debt to income ratio
situations then go ahead and click the link and learn more about my
professional team and what we can do to help you rock it out in your investing