Let's say you want an applicant's monthly income to be at least 3X the monthly rent. A) If the applicant is an employee, would you just subtract the average expenses found on the bank statements from the average income found on the pay stubs? B) If the applicant is self-employed, would you subtract the average expenses found on the bank statement from the average income on the 4506-T?
You don't have to subtract any expenses from the income, because expenses are already factored in. The assumption behind looking for a tenant's monthly income to be 3x monthly rent is that the tenant's non-rent expenses would be less than 66.7% (or 2/3) of gross income. Any more than that and they won't qualify.
So, for example, if rent is $1K, you'd need the tenant to earn at least $3K to be able to pay all their expenses and still have enough left to pay you.
Also, for W-2 employees, I recommend you get three months of pay stubs and calculate the average. For the self-employed, I recommend you look at three months of bank statements to calculate average deposits.
As an aside, since many folks pay their monthly expenses via credit card, just looking at their bank statements would never give you an accurate picture of their total expenses.
As an aside, since many folks pay their monthly expenses via credit card, just looking at their bank statements would never give you an accurate picture of their total expenses.
But could looking at an applicant's bank statements show you if the person consistently spends more than 2/3 of their income per month?
As an aside, since many folks pay their monthly expenses via credit card, just looking at their bank statements would never give you an accurate picture of their total expenses.
But could looking at an applicant's bank statements show you if the person consistently spends more than 2/3 of their income per month?
What you propose only works if all their expenses actually come out of their bank account. If they use credit cards, you'd need to get those statements as well!
I recommend you not over-complicate this. If you won't sleep at night without an extra margin of safety, consider requiring an income of 4x rent!
I don't know your market, but there are experienced property managers there that do: Find out what the industry norms are and incorporate them into your policies.
Just don't price yourself completely out of your rental market by establishing unrealistic standards.