It’s a good time to be a landlord. The real estate market is booming around many areas of the country, including tons of urban areas. More and more Americans are renting their living spaces, and home purchase rates are down, which is good news for savvy real estate investors who own properties available to rent. Income properties are looking good, and you can make yours as profitable as ever in the coming years — provided, of course, that you don’t make a devastating mistake as a landlord.
When it comes to renting out a property, few things are as important as a tenant who is able to pay the rent that you ask. Unfortunately, some tenants fail to pay their rent, and that can be disastrous to your finances as a landlord.
Tenants’ Financial Problems Could Become Yours
Income properties rely on tenants, of course, to make money. Without rent being paid, no income is coming from the property. But when tenants start to struggle financially, landlords can find their own situation is precarious, too. Many areas protect renters with laws that make it more difficult for landlords to collect back rent and evict deadbeat tenants. And compounding the problem is the fact that an occupied property will deteriorate faster than an unoccupied one. If your tenant starts ignoring their rent, you’ll watch your investment devalue while missing out on the profits it was supposed to provide.
So news that renters are sometimes stretched beyond their means — some paying as much as half of their income or more in rent — should be alarming not just to tenants, but to landlords as well. It’s important to understand just how much of a burden rent can safely be.
What Kind of Rent Can a Tenant Afford?
All of this means knowing what a tenant actually can — and can’t — afford is important. One popular rule of thumb is that a tenant’s income should be roughly three times the amount of the rent over the same period of time (New York City landlords, for instance, demand that tenants earn annually at least 40 times the monthly rent of the apartment).
This rule isn’t set in stone, and you have to consider other things, such as the cost of living in the area, how steady the tenant’s income is, and so on. But keeping some standards in mind is vital for landlords. Landlords should also check credit, because while a wealthy tenant may seem more likely to pay his or her rent than a tenant of more modest means, you might be surprised to find that the richer tenant has a reputation for accumulating unpaid bills and leaving creditors in the lurch.
How to Determine Whether a Tenant Can Afford Your Rental Property
Knowing what you’re looking for and understanding the basic rules related to income and rent proportions is great, but you won’t be able to avoid renting to deadbeat tenants unless you have a way to actually check a tenant’s credit and other financial qualifications. Fortunately, it has never been easier to do this. Online landlord software makes it a breeze to post your property’s advertisements, collect rental applications, and screen and background-check tenants, and check tenants credit.
With the right software solutions in your corner, checking out that all-important financial picture can become a whole lot easier, allowing you to sleep better at night knowing your property and financial bottom line are as protected as possible from deadbeat renters.