Gross income 3x rent too simplistic

[Robert Steele]

I see this metric of gross income should be 3x or 4x rent and cannot see how this can possibly be useful other than a preliminary "should I even bother looking at this app".

I think a more useful metric would be to use net income which you can calculate by looking at their credit report. That said would the multiplier still be 3x, 4x rent or 2x? I haven't seen anyone address this issue although one commenter on another thread did bring it up. To the sound of crickets.

I have an applicant who has $10K/month income but is $5K/month in debt payments. The rent is $1500. So they meet the 3x, 4x gross and even meet 3x net. Their credit score is in the 500's and they getting divorced. I am wondering if this is where the debt to income metric comes in. Does anyone use that metric and if so what value do you find acceptable?

[John Chapman]

I agree that net income is a much more precise (and thus better) metric for measuring the tenant's ability to pay. The thing is, though, I'm not sure it really matters.

I think at the end of the day most tenants have a basic understanding that when push comes to shove, and they've got to decide which creditors to pay, they are going to pay the landlord first so they don't end up homeless. I think there are very few bills that can you stop paying that will have as serious ramifications as failing to pay rent. You can stop paying your credit card, and all the credit card company can do is sic collections on you and get a judgment. You can stop paying your car loan, and the dealer can take the car back. In Texas, if you stop paying the rent, you are thrown out by the constable in a matter of weeks. Child support is the only bill that I can think of that can have pretty serious ramifications (jailtime) if you don't pay.

With that perspective, I think that 3x's the rent generally works. If a tenant makes that much, the tenant can probably afford the basics of life (food, utilities, etc.) and still pay the rent. If the tenant gets in too deep with other creditors, they will simply stop paying those other creditors, not the landlord.