Does the income 3 times rent requirement apply in all markets?

Question

Hi all,

My rental property is located in Orange County, CA. It is a 2 bed 2.5 bath that would go for $3100 per month in this market. This is the first time I am trying to rent it out though and I am finding it hard to find a tenant/family whose income is 3 times the rent. That would mean the renter should make $9300 per month in net pay, right? For example, right now I have an application from a single mom with two kids. She makes a little more than $6000 per month. She is a nurse at a local hospital with 703 credit score. So I guess other than the income she would make a good tenant.

I wonder if the "income 3 times rent" is true for markets like Southern California? Also would appreciate any other tips you may have for a first time landlord in this market

Alex Olson · Answer

It is not always perfect but it is a really safe bet. It helps ensure that you will get paid. Call around to PMs in your area and see what they require.

Amit M. · Answer

I get 3x rent of gross income on a regular basis in San Francisco, especially with professional roommates, dual income couples, etc.

Maybe the kids can get part time jobs ;)

Nathan Gesner · Answer

It's a rule of thumb and not meant to be applied to every single situation. You have to look at the whole person to see what other debts they have. For example, a 70-year-old retired person could have zero debt and make $6,000 a month, leaving them $6,000 to spend. A couple in their 30's may make $10,000 a month but they have debts like student loans, car payments, credit cards, and three kids.

Adam Martin · Answer

I don't have experience in CA and rents are much cheaper where I am however I would be cautious going less than 3x unless tenant is able to show considerable reserves.  You are in CA and from my understanding evictions are not easy or cheap.  I would do whatever is standard in your area which you will have to look around for, maybe call on some rental postings and ask.  Remember once they are in it is hard to get them out if they aren't paying and in today's climate and with Covid I would stick to your standards.  If you look around the forum you will see plenty of landlords asking for help getting out of an avoidable situation due to taking shortcuts on screening.    Also don't forget to ask if she is receiving any child support or alimony as I will use this if someone is close but don't like to see this as the primary source of income.

Bill B. · Answer

You also have to find a way to figure in a way to calculate dependents (including stay at home spouse.)

A single person who makes 2.5X rent could easily be a better bet than a married couple with 3 kids and 3x the rent. I’ve heard kids are expensive, and that was 30 years ago. I doubt they’ve gotten cheaper.

Negar P. · Answer

Thank you everyone for your help. I think my mistake was to expect the net income to be 3 times rent, that was making things a lot harder. We are passing on this candidate anyway because she wants to live with her boyfriend whom she doesn't want to add to the lease.

Greg M. · Answer

For $3100 rent, using the 3X income requirement equals $111,600 minimum annual household income. That should be easy to find in Orange County. Wait a little longer and a better tenant will come along.

I don't view the 3X rent as a hard rule, but no way I'm accepting someone who makes 1.93X. At 2.75X I may look the other way. At 1.93X I run the other way.

Lawrence Leung · Answer

@Negar P. The 3x rent is really telling you that a prospective tenant's rent should "ideally" not be more than a third of their income. But as @Nathan G. eloquently explained, it is just a rule. You can have exceptions to whatever your process is as long as you consistently apply those exceptions.  A third of someone's income in the middle of their lives is a great barometer whereas someone in retirement you can use a different rule.

Matt Devincenzo · Answer

Generally the number of times rent should be gross, not net. And to your question no 3 times rent is not as common in higher cost areas from what I have seen. Personally I'm at 2.5 times which seems to be more common in SoCal. If $6,000 is net I would assume her gross is probably close to qualifying, and if there is any child support she very likely is well qualified.

David M. · Answer

@Negar P.

It’s more like 3x gross pay and 2x to 2.5x net pay...  it’s based off the old mortgage dti ratios..  it this assumes they have no other debt such as student loans, car payments etc.  otherwise, it’s better to work it he other way.  These multipliers are just rules of thumb

Does the income 3 times rent requirement apply in all markets?

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