Minimum income requirements for SFR rental - all adults at 3X?

[Mike Lauer]

Hello!

I recently acquired my first rental property in a nice Milwaukee suburb. It is a 4-BR SFR that I think I can rent for $1400-$1500/month. Rehab is almost complete and I'll be listing soon, so I'm cramming on my tenant screening education.There are two basics that I keep running across: 1) Make sure income is at least 3X monthly rent, and 2) Make sure each adult-age occupant submits an application. What isn't clear to me is whether the COMBINED income of the adult occupants is sufficient, or if they EACH should have 3X rent minimum incomes. On the one hand, I'd want the security of knowing that if one moves out (divorce/breakup, job relocation, etc), the other can still pay rent. On the other hand, it seems a bit extreme to essentially require 6X rent for a family unit. Turning down a nice family with excellent combined income and credit history seems a little nuts to me. But I'm new so what do I know!

Any advice for this newbie landlord? Thanks!

[Marcus Auerbach]

Great question, does not get asked enough! We usually require credit score of 550 or better and household NET income three times the rent. However there is some room for interpretation on both. On credit score we look more for a pattern of responsibility - for example, do they pay WeEnergies like clockwork, but their credit got dinged by medical bills? Reliability and responsibility is what we are looking for. I like people that are picky about the house. It tells me that it matters to them. So the more they complain about some things not being perfect the better I like them. Flipside - if someone barely takes a look at every room and just wants to fill out an application: run, they will not care for the house. We usually run credit only on the stronger breadwinner. If thats shaky we run the other one too. 

On income, the point is to make sure that there is enough money after expenses for paying rent. Most tenants live paycheck to paycheck. If they get paid a day late, I will know about it. Even if they make good money, most will manage to spend all of it and live without reserves. But if they have anough income they can absorb financial issues by spending less and will recover quickly. Most will meet the 3x requirement, only very few are over 4x. Teachers, policemen and bank tellers usually make less then 3k net a month, so they will need a second income to get to $4500 net for a 3x of $1500 rent - and they would all make perfect tenants.

The 3x rule is also very rough, because a single person with only one car will be financially much more stable than a family with 3 cars and 2 kids to feed - they have much higher living expenses. So it's important to speak with them and make sure they are financially comfortable with the rent and not over extended. How much do they spend at their current home?  

Aside of current income we look for job security. Does have someone a professional career and has been in that role for a long time or do they have various jobs and chnage every 6 months? If someone is hard working and has a career I am not too worried about them loosing a job, they will quickly find a new one.