One of the many things you need to know when you become a landlord is the ratio of your tenants income to the rent they will need to pay you.
If the ratio is too high you run the risk of your tenants having a few bad months and then not being able to pay you. On the other end of the scale is if it’s too low, then you may struggle to tenant your rental due to the requirements of ‘high end’ tenants.
The standard approach of the ratio is 30%. 30% of your tenant’s income would go to rent, leaving 70% for the tenant to live and play.
What happens if you slide it one way or the other? If you slide the rent to be 20% of your tenant’s income, then your property should reflect it! You would be attracting high level professionals and it’s likely that they will be looking for high-end features. If this is the case, do the numbers still add up on your end? Are you making the profit that you would be if you the ratio was 30%?
What about if you slide the scale so the ratio is 40% or even 50% of a tenant’s income? You will have a tenant who may struggle to pay the rent on occasion – are you prepared for that?
Tenants (hopefully) will have an idea of what rent they are comfortable paying, that will factor in any emergencies.But it’s your responsibility to double-check during the application process.
Undertaking your due diligence and choosing the right tenant is the key to enjoying being a landlord. Are they responsible? Are they likely to stay for a good long time? Can they afford to live in your property? The rent to income ratio is one of the key factors to look for when you are choosing the right tenant. It’s important then to make sure you feel comfortable with whatever percentage you come up with. But no matter what percentage you choose, have a plan in place, so you know what to do if your tenants are demanding more features, or they are not paying the rent.
If you would like help deciding on the ratio for your property, get in contact with us, we’re happy to help.
Do you feel the 30% ratio is still relevant? Or have times changed? Let me know, I’m interested to hear your thoughts.