Renting to another home owner

[Kay M.]

If a tenant passes tenant screening with 3X income vs rent (of your house) and has good credit history, but currently owns a home, would you rent to them or consider it a risk?

The reason they want to rent is because they purchased a home in So Cal, but husband works for water district in Sacramento. The tenant would rentout their house in So Cal before renting. Opinons appreciated.

[Jon Holdman]

When a bank considers rental property in evaluating your income, they use this formula:

net rental income = (rent * 0.75) - PITI

If that's positive, it helps your income. If its negative, it hurts. You might apply the same formula. Verify the rent yourself (check craigslist in the area, look at rentometer though its usually high). If this comes up negative (guaranteed it will, in SoCal) subtract it off their other income and make sure they still qualify.

I'd guess these folks are in the position of many others. They bought high, mortgaged it to the hilt, and now need to move. They can't afford to sell at a loss, so they plan to rent it until the market recovers. If that net rental income is close to zero, they may be able to hold on. OTOH, if they're losing $1000 a month (they paid about $400K and they're renting for $2500), there may come a time when they really start to hurt.