In an attempt to revive an old thread.... are we talking gross or net monthly income?
We require NET income to be 3X the rental amount. I don't really care what you make "gross" when you pay out half of that in 401K, medical benefits, alimony, child support, blah blah blah. I only care about what you BRING HOME because that's what you pay the bills with. It's worked out well for us thus far. We've placed 50 tenants in Connecticut / Western Massachusetts in the last 2 years and haven't had to evict any of them so far.
Assuming 1/3 of your income is spent on rent or a mortgage, we'd want someone to still have 2/3 of their income for the rest of their bills/debts. I would follow the 3x concept at all times. If you find that is unreasonable for your area, you could go down to 2.5x. I'd never go lower than that though personally.
That's actually standard advice you'll see on the other side of the coin also. Financial advice given to people is to not spend more than 30% of their income on housing, sometimes with a caveat that up to 40% is okay for a HCOL (high cost of living) area. It's just a good rule of thumb all around.
Good for tenants because they (hopefully) won't feel stretched too thin. And if tenants aren't stretched too thin, they are more likely to pay their rent and pay it on time.
... and would you also follow that same 3X rule for a room renter (roomer) in your home?
I absolutely would. If anything, I might make it 4X, lol. Just because it can become a much stickier situation if someone living in your own home with you is too low on cash. They might start eating your food, using your toiletries, etc. To me, it is even more important that a roomer can comfortably pay the rent.
I always use the 3X rule on income for renting. There are a few exceptions for retired people. They seem to manage their money much better than most. They are usually better tenants too. You also need to verify this information. I call the employer to verify income as well as calling their last landlord.
In an attempt to revive an old thread.... are we talking gross or net monthly income?
We require NET income to be 3X the rental amount. I don't really care what you make "gross" when you pay out half of that in 401K, medical benefits, alimony, child support, blah blah blah. I only care about what you BRING HOME because that's what you pay the bills with. It's worked out well for us thus far. We've placed 50 tenants in Connecticut / Western Massachusetts in the last 2 years and haven't had to evict any of them so far.
I use income of 3x the rent. I also use a DTI score not to exceed 45%. I use a scoring model so that I can formally approve and deny applicants on a standard consistent method to avoid discriminatory practices.
I would use that formula for a room rent. In a room rent that person has a lot less expensive to pay for. They don’t pay for utilities, landscaping, home ins, and other expenses that come with renting Or owning an home.
For a room rent, that person just needs a room and as long as you take a good look at their position in their job you should be good with just rent X 2.
I use income of 3x the rent. I also use a DTI score not to exceed 45%. I use a scoring model so that I can formally approve and deny applicants on a standard consistent method to avoid discriminatory practices.
We have been using 3x gross income for a long time. I've not heard before of using net. But I'd like to hear more about DTI, we get a lot of kids with high student loans, often deferred. It makes it hard to figure out what to count or not, as we don't know under what circumstances that deferment can be ended. We've certainly rented to people with student loans in excess of 100% of income, but have not had problems.
Does anyone have any rules to share concerning student vs consumer debt?