# The 110% rule



## GeniusBoy27 (Jun 11, 2010)

One of the most interesting things I heard was that if you have 3 or more investment properties, they're considered as a portfolio, and as long as rents are 110% of mortgage payments, property taxes, and condo fees, they take it off the debt service calculation. 

Is that still true? Anyone in banking have insight into this?


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## bigcake (Apr 3, 2009)

Net income should be 110% of debt service.


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## FortMacBroker (Jul 13, 2010)

Hello,

I am a mortgage broker and yes the gross income from your rentals when considering a portfolio must be 110%of mortgage payments. What they are saying is if you have a pith payment (principal interest heat and tax + if condo or strata fees apply) of say $1000 and income of $1100 from the properties they will do the deal. This is not saying that they will just omit the debt. The best banks out there right now are considering %80 rental offset. what this means is that they will take 80% of the rental payments and directly apply this to your debt load from these residences, in some cases there is a remainder of income and this is slapped on to you GDS (gross debt servicing) / TDS (Total debt servicing) ratios generated from your personal income and debt load. Where this is important is that there is also rental inclusion offset, which just adds the rental amount to your GDS/TDS. 

For Example:

Rental offset

Rent of 2000.00 PITH+C/S of 1000.00 Between all properties

1000K will be deducted and now you make 1K more a month on your income which in turn increases your buying power by 440.00 a month

Example 2

Rental inclusion offset

Rent of 2000.00 PITH+C/S of 1000.00 Between all properties

This money will be added to your income only so that means that your will increase your buying power by 880.00 per month BUT you will have to also deduct your 1000.00 from your income. End result is you loose 120.00 of your buying power.

In saying all of this there might be a bank that will provide 100% rental offset that I am not aware of but be aware of your options. If you are working with a Broker Firstline is great they have the 80% rental offset and do follow the 110 rule, if your working with the bank be aware that if you get turned down this might be there policy and thus you should seek yourself a broker with a wider veriety of options.

Hope all of this helps

Best Regards


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## GeniusBoy27 (Jun 11, 2010)

You mean net income of the properties, or my net income? That makes little sense to me to be honest.


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## OhGreatGuru (May 24, 2009)

Of your properties. See Wikipedia for a more detailed discussion. http://en.wikipedia.org/wiki/Debt_service_coverage_ratio


I don't know what you mean by "taking it off" the debt service calculation. This is a calculation applicable to any number of investment properties (not just 3), to determine if the income from the properties is capable of servicing the debt on the properties. Are you trying to apply it to servicing other, personal debt?


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## GeniusBoy27 (Jun 11, 2010)

Oh Great Guru: 

I think the issues is that your gross debt servicing/total debt servicing, which looks only at your debt equation from your total income (not including your rentals) would limit your purchasing power quickly if you had to "pass" the GDS/TDS ratios sufficiently well enough.


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