Rental Income Guidelines

Rental Income Guideline

A rental income guideline is imperative for every landlord to have.  Have you ever talked to a prospect and just loved them!  They seem to check all of the rental criteria guidelines but one – the MOST important one.

The one guideline they don’t meet is the rental income guideline which is having income of 3x the rent.

For me, this is a Pass – Fail question.  There is no wiggle room. If this prospect does not meet my income requirement of 3x the rent, I will disqualify this person.

Are you still with me?  Yes, I know that it is pretty easy to sit here right now and tell you that.  It seems drop dead easy to say and many of you may agree with me.

But, I am the first to admit that it can be really difficult to turn down a great prospect who doesn’t have the right income.  If you are lucky enough to run across a prospect who is great in every way but the income requirement, you may be very tempted to just go ahead and rent to this prospect. 

I mean after all, they are awesome!  How can you turn someone like this down?

My response is, very easily.(and yours should be the same by the way).

You may think you are doing this prospect a favor by renting to them but you are not!  By renting to someone who doesn’t meet the income qualification, you are basically taking away their financial stability.  

Cost To Live

Every prospect needs a certain amount of money to live on every single month.  You will quickly find that many of them do not know how much their lives cost on a monthly basis.  Your rental income guideline can help them not make a terrible mistake. They may be doing great right now and seem worth taking a risk on.  But when you add the rent, you may be sinking their financial boat and yours as well, because you all are now linked together. 

Imagine you meet them and their financial history is like a well balance boat. What happens when you add too many bricks to that boat?  It will get lower and lower in the water and will eventually sink. That is what will happen with someone that you approve when they don’t have income of 3x the rent.  Their boat may float along just great for a little while but will eventually end up under water. These tenants will have been set up to fail.

Where Is The Cut Off?

The problem is, if you make an exception, where is the cut off?  I have this discussion all the time with landlords who say, well, this prospect is only $25 short, $50 short, $100 short, etc.   Again you already have a rental income guideline and if the applicant doesn’t meet it, where do you draw the line and tell this person that they don’t qualify?  Is it $25, $50, $100 etc.?

Keep in mind that I manage a lot of properties and in some I have “inherited” the tenants. I have had tenants tell me that they can’t drive to my office because they only have $25 or $35 or $50 and they can’t afford to put gas in their vehicle until they get paid.

What seems like a minor amount of money to you, may mean the difference in a prospect eating or not.

 

Co-Signer And The Rental Income Guideline?

You may say well, what about a co-signer?  My response is going to be that a co-signer doesn’t help someone pay.  A co-signer is not going to guarantee that the person you rented to has enough money that month to cover the rent and all of the other expenses. 

The co-signer is the fall back person when when your tenant doesn’t pay and you have another person to collect from.  This person is really just an emergency back up plan.  The co-signer is most likely not planning on chipping in on the rent every month to make up the deficit.  Leases don’t really work that way.  

Unless you are going to put in your lease that:

  • Rent is $1,000.
  • Tenant will pay $950 each month.
  • Co-signer will pay $50 each month.

 

How many co-signers do you think will agree to this?  I would wager that not many will.  A co-signer doesn’t benefit the tenant when this person doesn’t have enough money to pay the rent every month.  A co-signer doesn’t help your applicant meet your rental income guideline.

A co-signer is not really an option for someone who doesn’t make enough money.

Life Happens – Even After This Tenant Moves In

You have rental income guidelines for a reason.  Stop and consider what would happen if this prospect wrecks a car, buys a new(er) car, has some hospital bills, etc.  All normal things that happen in every day life.  This prospect’s income deficit will only increase.  When that happens, do you think you will get paid in full and on time every month?

                                                Doubtful.

 

When that happens, it is the landlords fault.  You – the landlord – have set this person up to fail.  It may happen sooner or it may happen later but it will most likely happen.  

This is not a rule that I will bend because it is not in the best interest of the prospect and it is also not in my best interests.

Remember that your decisions affect not just your life, but the lives of the people you either rent to or turn down.

Sometimes the kindest and best thing you can do is to tell this person that they are great, their credit is great, their job is great but they just don’t have the income and you can’t rent to them right now.

Memorize these words and use them often.  “Company policy” requires income of 3x the rent.”

You can add any other words that you desire for empathy.

  • “I am very sorry, but your income is not quite 3x the rent and company policy requires that. “
  • “I am sorry but the income requirement is company policy I can’t make any exceptions.”

 

Remind them that it is in their best interests.  I have had cases in the past where I was able to switch this person to another property. Then, down the road, when they earned more money, I was able to move them into a bigger property. 

Your job is to put a tenant in the property who can pay the rent on time, every month in full.  That isn’t going to reliably happen when someone doesn’t meet the very basic income requirement

 

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