Screening Tenants: Gross vs Net Income?

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Screening Tenants: Gross vs Net Income?

Sarah B.
Landlord · Sioux Falls, SD · Member since 2016 · 100 posts · 58 votes

I have a married couple prospective tenants that look ideal; credit scores above 800, previous homeowners, etc. Rent is $2400/mo so I require $7200/mo income.  Husband is currently unemployed (due to COVID) and wife makes $10k/mo gross but only $5800 after withholdings.  So they meet the gross income = 3x rent but not the net income = 3x rent.  Husband is currently collecting unemployment and plans to get a job but I don't generally consider unemployment in my income.  Thoughts?

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Terrell Garren
Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes
5y

They had me at 800 lol. Not really though.  I keep my rents around $100 below market and look for good tenants that stay for several years.  Turnover cost $ and interrupts important stuff like fishing and goofing off.  I'd decline since my gut tells my they will buy and move in a couple years.

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  • Julio Garcia
    Rental Property Investor · Modesto/Stockton/Merced, CA · Member since 2020 · 456 posts · 214 votes
    5y

    PAsssss, seems like a lot of weight on the wife. No guarantee he'll get a job. 

    0Reply
  • Sarah B.
    OP
    Landlord · Sioux Falls, SD · Member since 2016 · 100 posts · 58 votes
    5y

    @Julio Garcia thanks!

    0Reply
  • Sarah B.
    OP
    Landlord · Sioux Falls, SD · Member since 2016 · 100 posts · 58 votes
    5y

    @Julio Garcia out of curiosity, do you require 3x NET?  I've always accepted gross but have never seen this big a disparity in net vs gross...

    0Reply
  • Julio Garcia
    Rental Property Investor · Modesto/Stockton/Merced, CA · Member since 2020 · 456 posts · 214 votes
    5y

    I do NET.  I could make 10k grosss, but what matters is what you take home bc that's what they will pay you with. 

    i'm doing x2, i live in CA, it's a little expensive out here. 

    1Reply
  • Sarah B.
    OP
    Landlord · Sioux Falls, SD · Member since 2016 · 100 posts · 58 votes
    5y

    Makes sense - thanks!

    0Reply
  • Trent Epley
    Rental Property Investor · Chicago (South Suburbs) · Member since 2020 · 13 posts · 10 votes
    5y

    Sarah - I hear why you are asking the question. I agree that it's a pass, and the main factor for me is that they both have 800+. That says a lot about their fiscal responsibility (and their unwillingness to see it drop). I also think unemployment as a means of income adds value, at least in the short-term. The one caveat is that I would take the opportunity to be transparent with these two that this is a concern of yours and see what they have to say. I'm not sure about the legality in how to approach it but they just may tell you they have a substantial emergency fund in place or that the husband would be willing to do work outside of his comfort zone to make ends meet. 

    0Reply
  • Sarah B.
    OP
    Landlord · Sioux Falls, SD · Member since 2016 · 100 posts · 58 votes
    5y

    @Trent Epley my thoughts exactly - Their high credit scores bode well for them and they do have a large amount in savings currently as they recently sold a house and are saving for another in 2 years or so.  I'm considering asking for first/last month's rent in addition to security deposit as an added precaution but am wondering if I'm being a bit too lenient.  

    1Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    5y

    @Sarah B. with their current income it isn't even close. Next!

    0Reply
  • Wendell Fong
    Investor · Vancouver BC · Member since 2020 · 88 posts · 60 votes
    5y

    That is funny.  The first time I read Pass.. I thought it meant pass on them as tenants, not that they get a Passing score. 

    To be clear, 800+ credit score is huge and they get a passing grade.

    3Reply
  • Sarah B.
    OP
    Landlord · Sioux Falls, SD · Member since 2016 · 100 posts · 58 votes
    5y

    @Wendell Fong I think people are saying to pass on them as tenants.  I feel that their credit score and high savings account should count for something...I appreciate you weighing in!

    0Reply
  • Jimmy Suszynski
    Rental Property Investor · Pittsburgh · Member since 2018 · 69 posts · 28 votes
    5y

    @Sarah Buchanan does the difference in gross versus net come from contributing a lot to a 401k?

    I don’t have a lot of experience myself but if the wife is contributing the maximums that may leave room for adjustment if need be by reducing the dollar amount of monthly deductions.

    For me, personally, if it came down to being evicted and/or hurting my credit score or putting more money towards retirement savings I would save my credit and keep a roof over my head.

    2Reply
  • Terrell Garren
    Rental Property Investor · Concord, NC · Member since 2016 · 1k+ posts · 3k+ votes
    5y

    They had me at 800 lol. Not really though.  I keep my rents around $100 below market and look for good tenants that stay for several years.  Turnover cost $ and interrupts important stuff like fishing and goofing off.  I'd decline since my gut tells my they will buy and move in a couple years.

    5Reply
  • Marcus Johnson
    Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes
    5y

    @Sarah Buchanan. Why would you consider giross income when that isn’t what ends up in their actual pockets?

    0Reply
  • Marcus Johnson
    Investor · Saint Paul, MN · Member since 2015 · 663 posts · 512 votes
    5y

    @Sarah Buchanan I personally don’t care about the credit score, because that means you love to borrow debt and pay it back. I actually look at the credit history because that shows late payments and how much they pay versus how much they make

    2Reply
  • Clint G.
    Rental Property Investor · Corpus Christi, TX · Member since 2019 · 306 posts · 176 votes
    5y

    @Sarah Buchanan

    I look at net income as well. Gross income gets my attention but then I'll look at net from their paychecks. I'll also see what other kind of payments they have such as vehicles, and take that into consideration as well.

    In your situation, I'd want to see bank statements to see how much cash they have to cover rent. Id also want proof of his unemployment pay. Sounds like they're in good shape.

    Something else I might do is collect rent on a site like cozy.co and require them to opt in to the feature that links on time/late payments to their credit score. I doubt they want to lose their 800+ credit scores, so they'll keep up.

    You might field some other applicants to see what might come up. If options are slim, I think you'd be fine choosing them.

    4Reply
  • Kenneth HynesPro Member
    Rental Property Investor · Easton, PA · Member since 2013 · 357 posts · 92 votes
    5y

    @Sarah B.  How many other tenants applications have you had that had passed your screening criteria .    I think  we are all going to be running into issues reference tenants impacted by COVID , and this couple seems better prepared to handle the situation in the short term .  What was husband's occupation pre Covid and how soon is that going to come back in your area?  

    2Reply
  • Allan C.
    Rental Property Investor · Member since 2018 · 826 posts · 809 votes
    5y

    @Sarah Buchanan if rent is above $2500/mo I use 2x net with good credit history. Living expenses outside of housing do not scale the same at higher rental rates.

    4Reply
  • EJ K.
    Quad cities iowa · Member since 2019 · 104 posts · 78 votes
    5y

    My thought is the need to be 3 x higher than rent decreases the more money you make.

    Example would be in my situation my take home is less than 3 x mortgage when you include retirement maxing and other deductions.... however keeping 65 percent of

    1Reply
  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    5y

    I would accept. They are 3x gross.  What is deducted could be 401k or higher voluntary withholding due to husband also having had a high paying job. However it doesn't matter  they have good credit, alot of missed payments would have decreased their credit score. Plus they have some income you aren't even counting that will cushion them.  Keep in mind there is net you can see and net you can't see.  People can net a lot but  they spend on non-fixed costs. resturaunts, clothes, etc. Not sure where you are getting you net from, a paystub or a calculation you do. 

    4Reply
  • Dan DiFilippoBusiness Member
    Real Estate Broker · Fayetteville, NC · Member since 2020 · 251 posts · 244 votes
    5y

    @Sarah Buchanan if they're fishermen or in some kind of related profession, then definitely want to go with net income. But if they're in a sanitation line of work, it's much better to evaluate according to their gross income.

    [email protected]910-745-6972
    Brookdale Property Management
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    2Reply
  • Mary M.
    Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
    5y

    you might check and see if source of income is a protected class - AFAIK, it is....  but maybe your state is different   this means you cant "disallow" unemployment income...  you have to count it. 

    Also, consider your market - how many applications did you receive? how many folks expressed interest? Its seems that that is pretty high monthly income so your pool of tenants is going to be smaller. 

    and one more thought - this thread is possibly biased against the female being the bread winner.... if this were reversed - where the man worked and the woman was at home - I think you would be getting very different responses....  

    4Reply
  • Mary M.
    Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
    5y

    Also another thought - maybe look to your local rental owners association for what they recommend for criteria. I know my local orgs have copious amounts of "standard"  information and guidelines and I use what is industry standard. This is easier for me as all the forms and criteria have already been vetted by attorneys etc. 

    1Reply
  • Max T.
    Investor · Philadelphia, PA · Member since 2015 · 3k+ posts · 3k+ votes
    5y

    @Sarah Buchanan

    In a perfect world it would be net. But in my reality nobody would ever meet that standard so I go with gross. The way I see it is rent collection is my responsibility and tax collection is for the government.

    1Reply
  • Sarah B.
    OP
    Landlord · Sioux Falls, SD · Member since 2016 · 100 posts · 58 votes
    5y

    @Mary M. great advice!  Actually, this particular property is in Portland, OR where I see you are from.  (I am from Portland, just recently relocated to SD) 

    0Reply
  • Sarah B.
    OP
    Landlord · Sioux Falls, SD · Member since 2016 · 100 posts · 58 votes
    5y

    @Dan DiFilippo HAHAHA!!! I love it!

    1Reply
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