When someone applies for a rental property, one of the first things a property manager will perform is to determine if the renter can afford to pay the rent on time every month.
At the very least, the property manager will conduct a credit check, conduct a background check (criminal and civil suits), contact references and even review the candidate’s criminal history along with any evictions recorded.
However, in order to ascertain the viability of the prospective tenant, in other words, can the tenant afford the specified rent.
There’s a simple formula that many managers use to help understand the applicant's finances.
Many managers and landlords will utilized the 40 percent (40%) formula in qualifying a prospective tenant; the applicant should have no more than 40 percent of their monthly income available for paying rent.
Suppose the rent for a specific property is $2,000 per month and the tenant reports that they make a combined income (total of all sources) in the amount of $6500.00
Multiply the applicant's (prospective tenant) gross monthly income by 0.4
Example: $6,500 x 0.4 = $2,600
The applicant can qualify for the specific property and the manager will proceed with conducting the required background and credit checks.
However, if the rental property is listed at $3,000 per month, the tenant may not be able to meet their obligation and the manager will not proceed with conducting the background and will deny the applicant based on financial disqualification.
If the numbers do not compute, the manager must consider other, more financially well-qualified applications first.