New landlord...3X rent as salary requirement...too high?

Question

SFR is in the Dallas TX area which is a red hot market right now. Rents have increased a lot over the last few years.

I am concerned that requiring 3X rent as a monthly salary may be unrealistic.

- it is a 3 br, 1.5 bath, 1 car garage in 75126

- rent is $1350/math

Input?

Erik W. · Answer

I do require 3x the rent, minimum. To be clear: 3x the rent does not mean an applicant automatically passed the income test...it means if the applicant is LOWER than 3x the rent, they automatically fail the income test. See the difference?

After passing the minimum income test, a wise land lord should look at debt (and other financial obligations) to income. Someone making 5x the rent with 60% DTI may be in a worse positions than vs. someone making 3x the rent with a 10% DTI.

LLs in very high COLA markets could consider 2.5x the rent, however. Let's pretend we're in NYC, where rents for studios routinely run $3000/month. Someone making $8000 isn't making 3x the rent, but would still have $5000 left after rent is paid to meet other expenses. I think most of us could eat, pay utilities, and watch NetFlix on $5K per month. This is a very extreme example, so in general I think 3x the rent is a good place to START. It is close to the standard 35% of income used by secondary mortgage lenders.

Bryce Litwin · Answer

If they don't make at least 3x the rent they cannot afford your rental.

Bob Houston · Answer

Thanks for all the input. I just started advertising and want to do it right. I will stick with the 3x and see how it goes.

John Meirose · Answer

Agree, require 3x the rent amount for income...and make sure to verify the income source.

Ghazey Aleck · Answer

Are you not getting applicants that qualify? In my opinion 3x rent in income is the bare minimum. Wouldn't consider anyone who can't meet that.

Daniel Y. · Answer

Hi Bob,

Unless your property is in South Dallas, then you really should have to worry about asking for 3x rent based on gross salary. We if look at it, you have a 3 bd/1.5 ba SFR, so most likely small families of 3-4 people will be looking at your property. If it is a dual income family, which most are, that means each parent needs to have a $12.75/hr full time job. In a strong population and job market, I think that shouldn't be too much of a problem.

Daniel

Etienne Martel · Answer

Hey Bob,

I don't find this realistic at all. During all our screening; we require 3x rent, no evictions, no felonies.

I would attempt to screen how your property manager recommends. If you still do not have a tenant in 1-2 months, I would reproach the screening process.

Thanks & Never give up!

New landlord...3X rent as salary requirement...too high?

New landlord...3X rent as salary requirement...too high?

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