Investor · Boise, ID · Member since 2011 · 1k+ posts · 736 votes
Hi BP experienced Landlords - What are your typical income requirements from tenants? I historically have required a tenant's gross income to be at least 3 times the monthly rent, but I'd like to know if there is any sort of industry standard. Thanks!
3X is acceptable to me if they check out elsewhere and can fund the deposit. I would favor a tenant with 4X and other negatives over one with 3X and a shinier file though. Capacity to pay is the biggest factor to me aside from the automatic disqualifiers.
3X is acceptable to me if they check out elsewhere and can fund the deposit. I would favor a tenant with 4X and other negatives over one with 3X and a shinier file though. Capacity to pay is the biggest factor to me aside from the automatic disqualifiers.
My requirement is the rent be no more than 40% of gross income, which is a little looser than the above responses, but rents are high in my area compared to other areas, and I don't often deviate from my standard.
I ask for >3.5x rent. I'll flex if everything else looks buttoned up. I saw an apartment hunting TV show where the couple was looking for a rental in Paris. They said that the law there was the tenant had to earn at least 4x monthly rent. And apartment rent is high there, similar to NYC or SF.
I don't have any requirement on income/rent. I care more about other things.
1. Reserve amount in bank.
2. Are they able to pay 1st and last plus deposit.
3. Jobs possility to continue or increase income.
4. In business for themself.
5. Underwater on other payments: multiple car payments, furniture etc.
Rich
Don't you look at other obligations as well? What if they have two car payments, and credit card amd other consumer debt? 3x income seems too simplistic, though it is also what my PM uses. Perhaps using 2x of total obligations would also make sense as a second check, akin to what a bank does.
Yes...you need to look at the whole picture. 3X - 4X is too simplistic just like the 50% rule is too simplistic. It is just a guideline to screen quickly.
In your thread - you were asking about income requirements. You should have a criteria list that you evaluate all applicants against equally.
Age - some do not like using this as you cannot discriminate by age. However, if under 18 they are not legally bound by any contracts so a requirement of a minimum age of 18 would be a starting place. Many 18 year olds do not take care of the property, but that is something you will have to decide.
Income - minimum of 3X rent amount.
Employment - 2 to 3 year history at same job or at least in the same industry. If changing jobs every 3-4 months could be hard for you to collect when in between jobs.
Self-Employment - last year's tax return and 2 previous month's bank statements.
Credit - some look at the credit scores - others do not. Another criteria is that not over 5% of the total accounts reported be over 60 days late in the past 2 years.
Pets - allow or not.
Smokers - allow or not.
Section 8 - allow or not.
Criminal history - No criminal conviction involving violence, weapons, illegal drugs, theft, destruction of property, sexual crimes, felonies, misdemeanors, or crimes involving a minor.
Optional Criteria:
1. Auto deposit of rent into bank account on the first.
2. Double deposit for marginal tenants.
3. Co-signer to be responsible if tenant does not pay.
This will give you some ideas for compiling a criteria eval sheet.
The county Housing Authority (administers Section 8) in my area require the tenant to pay 30% of their income toward rent (the balance paid by the voucher). If tenant picks a more expensive place, the tenant is allowed to pay up to 40% of income toward rent - but no more than that.
30% works out to be very close to having pre-tax income being 3 times the monthly rent. 40% is exactly the same as having pre-tax income of 2.5 times the monthly rent. Those using 4 times the rent are expecting to get 25% of the income as rent; this is a conservative number, so those tenants who have this amount of income should be more able to afford the rent.
Of course, I've seen tenant applications where the applicant had met the 4 times threshold - on their mortgage payment! - and yet weren't able to make that monthly payment (hence their reason for seeking to rent - imminent foreclosure).
This is some valuable info, thank you so much. I especially appreciate the reminders from Dale. Have two vacancies right now - one a 1 bedroom condo and one a 4 bedroom SFH- very different tenant pool. Having this list will help me keep it straight across the board.
In the list - I forgot to add a 2-year rental history to check back on. Previous landlords if honest can provide some good information as to how they take care of the property, noise complaints, police calls, etc.
For the rule of thumb, whether it's 3x or 4x, does that number assume your rent amount includes utilities? I have my tenants (SFH) pay all their utilities directly and curious to see how that would affect this, so what their paying me does not include utilities? Any & all feedback is appreciated.
From a Fair Housing perspective. Your rules should be written down and followed to a tee. If you flex and deviate, then it's going to be really difficult for your lawyer to defend you if you are charged with illegal discrimination. One tenant from a protected class gets denied and you bend or flex one of your "rules" for another tenant not in the same protected class and you have no defense. Personally I use 3X rent in gross income. I consider student loans as income as well. I don't look at debt load unless they have not paid an then only if it's something related to housing. I figure if they have managed it in the past they will do so in the future as well. Even people with horrible credit can be good tenants if they have their priorities straight and pay rent first.