Architect · Providence, RI · Member since 2016 · 258 posts · 195 votes
So, right now, I'm requiring that the tenant have 3x the rental as their income. I've also heard it said that you should require 35 times or 40 times the monthly rent as their yearly income (which is a bit more strict). But should this be NET or GROSS income? I've been assuming that 3x monthly rent should be the minimum gross income, but maybe I'm not being strict enough? What do you use?
Hi @David Sisson. We use gross income. Otherwise, to be fair to all applicants, you'd need to adjust for retirement plan contributions, tax deductions, Social Security Insurance, etc.
You can always make your requirements more or less strict, just by adjusting the multiplier you require.
Thank you Mitch. What's your requirement? 3x? 35x? 40x? I'm really just starting out. I have a couple of commercial properties, but this is my first residential SFR. The interested tenants are too low income by any measure, but I wanted to make sure I'm not shooting myself in the foot. Sounds like I'm on the right track, as long as 3x works...
@David Sisson Unless the units is very low rent, I would suggest and use using 3X for the monthly gross income. If the property is very low rent, i would possibly increase that to 4x, just because some costs of living are not linear with income (think cell phone bills, they are basically the same for poor and rich people).
So, right now, I'm requiring that the tenant have 3x the rental as their income. I've also heard it said that you should require 35 times or 40 times the monthly rent as their yearly income (which is a bit more strict). But should this be NET or GROSS income? I've been assuming that 3x monthly rent should be the minimum gross income, but maybe I'm not being strict enough? What do you use?
Gross income.
Problem with using net income is you would end up thinking the person with a $500/mo health insurance plan is more stable than the uninsured person spending $500/mo on vodka, since health insurance shows up on paystubs but vodka does not.