rent is 50% of income

[Lynn Berg]

Hi everyone,

I have a prospective tenant who nets $3600 per month but take home is only 2700.  The rent will be $1300.  Does the tenant make enough to afford the rent? It's about 50% of income. I also have another tenant that would be a guaranteed monthly rent of $1200.  Would you take the guarantee or go for the extra $100 a month?  This is my first rental property so I'm torn. I'm leaning toward the guaranteed payment vs risk but just wanted to get some opinions from experienced landlords.

[Matt Devincenzo]

Pretty typically your criteria is a gross multiple of 2.5X-3X of rent. So using your example if you say your criteria is 2.5X = 1300 * 2.5 = $3,250 gross they would qualify. If your criteria is 3X = 1300 * 3 = $3,900 gross they would not qualify.

Having done both South East 'cash flow' and Socal appreciation/long term growth rentals, I'll say that high COLA rent areas criteria tend more towards the 2.5X where lower cost cash flow areas tend more towards 3.0X. That said my last Socal tenant placement each tenant made 3.5X gross for a combined household 7.0X gross income.