Count social security and disability as income?

Question

Hello all! Do you count social security and disability as income to calculate 3X gross of the rent? Seems like it would be a constant and reliable monthly source of income, but I have never come across this.

Account Closed · Answer

I just wanted to add that I wouldn't worry about the income being judgment proof.  Really, you don't have any guarantee of collecting from any tenant that you had to sue.

And the upside to renting to someone on a fixed income is that they can't lose their job.

Just do your normal screening otherwise, and they should be okay.

Andrey Y. · Answer

Thank you for all the responses guys. I think she was only 96% of the way to 3X of the rent, but since you guys are telling me its not taxable, it should in effect be way more than 3 times monthly rent.

Bill Hamilton · Answer

Well, mortgage lenders count it. In fact they count it at higher than 100% (can't remember the percentage) because it is usually non-taxable.

Account Closed · Answer

Right.  They add 25% because it's not taxed.  I think they call it "gross up," The idea being, that gross income that was taxable (wages) would then be taxed at 25%.  So, to look at the untaxed income in the same light and with the same calculations, you should "gross up" the untaxed income 25%.

So, when looking at 3X the monthly rent, you first add 25% to their untaxed income, then multiply that by 3.

An example: In CA, SSI income including the state supplement, is $890/month.  So, if you wanted to see if an SSI recipient met the 3X rule, first you add 25% ($222.50) of the $890 + $222.50 = $1112.50.  Divide that by 3 = they can afford $371 rent (if you require 3x rent).

Andrey Y. · Answer

Sue K.

Thank you guys for your replies. Could not tag people on my mobile earlier.

I learned a valuable lesson with this property. I had a great tenant who was paying a bit extra for having dogs in the property. She wanted to negotiate rent to be dropped $150, but eventually agreed for it to be dropped about $75 bucks. I didn't jump on it and she moved to a cheaper a bit more run down area.

Now, I had a bunch of people flake and my advertised rate is LOWER than what I could have had this lady just stay another year for. I listened to my dad (who is an east coast SFH landlord) who suggested I be stingy and firm, and I lost out on a great tenant and not having to looking for another one.

Given that the property is worth about $75-80k more than I payed for it, and the monthly rent/property value ratio has fallen to a current value of 0.7, I may just sell the property within a year and take advantage of the current equity market. This has been a great performing property with minimal expenses but my <5 hours per year I typically spend on each property has been exceeded in a major way on this one.

Jason Hirko · Answer

Exactly - Someone who is bringing in $900 a month isn't going to be worth suing anyway, no matter how much damage they do to your place.

Upen Patel · Answer

@Andrey Y. Yes, social security and disability income is counted as income for mortgage. It is non-taxable income so, it is grossed up. It is no different then other income. Using it does not restrict or change the other aspects of a mortgage underwriting.

Penny Clark · Answer

@Andrey Y. Yes, definitely count it. In my state it is considered discrimination if you don't count this type of income. Other income sources include unemployment, student grants, trust fund payouts and public assistance. Make sure to ask for a copy of their award letter showing the amount (Recipient should get an updated one every year if income changes) and ask for 10-12 months of bank statements showing these amounts deposited into their account. Screen well, because like Greg S. said,  if you should have to collect money, most of these folks are "judgement proof."

Good luck!

Thomas S. · Answer

Make sure you do a thorough screening to confirm you are getting a good tenant. This is the type that will be hard to collect from if they stop paying.

Contact their previous landlord, not the one they have now.

James Wise · Answer

@Andrey Y.

You should count both of those as income. Social security is actually a pretty good source of income. Stable and reliable. In some locations it would actually be discrimination not to accept these as income.

Count social security and disability as income?

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