Rental house for $2400/mo. Minimum income requirement?

Question

Based on the 3x rule, should I be requiring their GROSS income to be $7200/mo? or their after-tax income should be $7200?

Al Williamson · Answer

@Andy Kaye

Learn from my pain - Do not waiver from this rule of thumb. Be nice, but take care of your family. Don't make any exceptions to the 3x rule.

Bill Gulley · Answer

Allow me to drill down a bit more. First, cost of living in your area comes into play, what is really required for the family size to get by or to live comfortably or at a more affluent life style.   Are the applicants working, a two job family or are they retired, look to the expected life style and the cost. Can they accomplish that life style on the disposable income?

How is their credit and use of credit? Do they have savings? Job or employment or source of income.....is it stable, is it expected to increase? Hoe long have they been in that line of work? If it's retirement income, are they burning through an IRA or is their retirement from a stable company?

The issue with 3 or 4 times the rent is that as the rent increases, you begin to demand more disposable income which may not really be needed for the life style they might enjoy.

Some people enjoy a nicer home than they might driving a new car every year, especially if they are retired. Those with kids will suffer more to provide the kids with a better school system. So, in such cases, a flat % of income may not be as critical as rents increase.

It's the disposable income after taxes and rents that really matter.

You'll find too that self employed people may have a bit more than taxable income declared or required if you look at net or gross from tax returns.

So, this goes to more of an underwriting approach for tenants and determining what makes sense as to who can really afford what.

You should also consider this approach at low rent levels that are not subsidized, can the tenant actually "have a life" paying that rental amount? Disposable income is key.

However, you usually won't go wrong at 33% of gross income, but that does have room for adjustment at low and much higher rental rates. :)

Travis Lloyd · Answer

Absolutely 3x at minimum. In NYC we like to require 40 times rent (96,000 in this case), and yes that is pre-tax. How they handle uncle sam is their business (and the same goes for us!).

Fred Heller · Answer

gross income

Rental house for $2400/mo. Minimum income requirement?

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