When you bought your first property, it was probably a little more exciting than you had really expected. Not necessarily the “hooray” sort of excited but more like being anxious at every turn. There are lots of moving parts when considering an using rental income to qualifyinvestment property purchase from estimating repair costs to buy price to rental rates.

Your first rental however, you had to qualify on your own without the benefit of the rental income from the unit. But now that you’re a landlord, you’re less surprised by the process. Now you can leverage your position where rental income can be used to help qualify you.

For real estate investors who are in the market to buy and hold property for the long haul, lenders can use the rental income from a property to help qualify as long as the borrower can provide evidence of landlord experience. That evidence comes from Schedule E on your income tax returns. Once filed, a lender can consider you as an experienced real estate investor. It also means that you can obtain conventional loans, the ones with the best long term rates, to finance up to 10 properties.

When researching a potential deal, compare the rental income from the unit with an appropriate mortgage payment using current rates. Of course you want to cash flow each month but you also want your tenants to in effect pay your mortgage, property taxes, insurance and property maintenance with their rent payments.

From a mortgage lender’s perspective, if the rental income more than covers the debt acquired, you’re not adding anything to your monthly obligations; the new payments are offset. Be careful however when estimating potential rent. When a lender appraises the property part of the report includes a market rent survey, required on all investment property loans.

Regardless of what your future tenants now pay, the appraiser will compare rents from similar properties in the neighborhood to justify the rental income. If the current rent is equal to or less than the market rent for the area, you’re good. If the current is more than what the rental survey can justify, the lender won’t completely offset the new mortgage payments and you’ll have to qualify with the additional debt.