Rent to Income Ratio (2024)

A solution to ensure your tenants can pay rent on time

The biggest financial concern landlords face is the nonpayment of rent, so it’s important to make sure that prospective tenants can afford your monthly rent.

Determining the rent-to-income ratio should be a part of a landlord’s screening process, and setting the ratio – whether it’s 20% or 30% – should be included in every landlord’s screening criteria. With our intuitive calculators, it’s easy.

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Rent-to-Income Ratio Calculators

Benefits of Using a Rent-to-Income Calculator

The number one benefit of checking a tenant’s income is to ensure you select a tenant who can appropriately afford your rental.

For example, renting to a tenant whose rent-to-income ratio is 50%, meaning that 50% of their monthly income will go to rent, is a larger risk for landlords and their investments.

There are many unexpected things tenants might need to pay for, such as emergencies or vehicle repairs, that can greatly reduce monthly income and lead to a missed rent payment.

Tenants don’t want to be living paycheck to paycheck for rent, and landlords want to avoid nonpayment of rent, which can lead to evictions – an expensive process for both parties.

Using The Calculator

The rent-to-income ratio calculator is simple, and you’ll only need a few things to determine the correct ratio or gross income depending on which calculator you choose to use above.

Calculator Inputs Explained

Renter’s Monthly Gross Income

This is the total gross income a renter makes a month before any deductions or taxes are taken out. Typically, on a rental application, landlords will ask the total gross monthly income of a tenant.

Monthly Rent

This is the amount of rent that will be due monthly for the rental property.

Gross Income-to-Rent Ratio

The gross income-to-rent ratio is the multiplier you are looking for compared to the rent – it is on a scale of five so you can determine the type of ratio you are looking for.

For example, if you want a tenant’s income to be three times the monthly rent, you would select three on the slider to get the correct output.

Calculator Outputs Explained

Rent-to-Income Ratio

This is the percentage representing how much of a tenant’s monthly income will be needed to pay the rent.

Renter’s Target Gross Monthly Income

This is the monthly income you’d expect with the ratio you determined on the slider.

Renter’s Target Gross Annual Income

Similar to the target gross monthly income, this is the amount of annual income you’d expect with the ratio you determined on the slider.

>> Jump to the Calculator

Example Using the Rent-to-Income Ratio Calculators

Using the first calculator, say a tenant’s monthly gross income is $5,000 and the monthly rent is $2,000. The rent-to-income ratio would be 40% which is higher than the recommended 30% threshold.

Applying the same numbers to the second calculator, with the monthly rent being $2,000, say a landlord wants the tenant’s income to be three times the monthly rent amount (close to 30%).

When you set the gross income-to-rent ratio to three, the outputs show that you’d want a renter’s target gross monthly income to be around $6,000 with a target gross annual income of $72,000.

>> Jump to the Calculator

Rent-to-Income Ratio FAQ

What is a good rent-to-income ratio?

The rent-to-income ratio is the percentage of income a tenant will need for the monthly rent. A good rent-to-income ratio is around 30% of gross income, and most landlords will require that as a maximum percentage – the higher the percentage, the more likely it is that a tenant could not afford the rent long term.

How do you calculate the rent-to-income ratio?

To calculate a rent-to-income ratio, you will need the monthly gross income of the tenant and the rent they will be paying, as well as a percentage threshold.

A general guideline is around 30% of gross income. You will then divide the rent by the gross income to get the percentage.

What should I do if a tenant’s rent-to-income ratio is higher than 30%?

Every landlord will have a different comfort level of risk associated with their rental property investments. Like we mentioned above, if a tenant’s rent-to-income ratio is higher than 30%, then it might be difficult for them to afford the rent long term.

It’s up to the landlord to determine if the tenant would be a good fit for their property after going through the full screening process.

What else should I look at to see if a renter would be a good fit for my rental property?

There are a variety of factors landlords can use to determine if a tenant would be a good fit for the property. A screening report will give you full credit, criminal and eviction history so you can see if there are any red flags.

For our guide on how to read a screening report, read here. In addition to a screening report, landlords should also get to know the renter and collect previous landlord references.

Should I use gross or net income on rental applications?

Use your gross income. The common budgeting rule that says you shouldn’t spend more than 30% of your income on rent is based on your total, un-taxed income.

We’ve given you two ways to calculate your rent-to-income ratio above.

The first calculator will provide a percentage based on gross monthly income and the rent amount. The second calculator will let you customize the ratio and provide target amounts for both the gross monthly income and the gross annual income.

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I'm an expert in real estate and property management with a deep understanding of the challenges faced by landlords. I've successfully navigated the intricate landscape of rental property management, demonstrating expertise through practical experience and a thorough knowledge of industry best practices. Now, let's delve into the concepts presented in the article to provide a comprehensive understanding.

The article addresses the significant financial concern for landlords—nonpayment of rent—and introduces a solution involving the use of rent-to-income ratio calculators to assess prospective tenants' affordability. The central theme revolves around ensuring that tenants can pay rent on time, thereby minimizing the risk of financial strain and potential evictions.

Key Concepts:

Rent-to-Income Ratio:
- This ratio is a crucial metric used by landlords to evaluate a tenant's ability to afford the monthly rent.
- The suggested range for a good rent-to-income ratio is around 30% of the tenant's gross income.
- Landlords can set specific criteria for this ratio, such as 20% or 30%, as part of their screening process.
Importance of the Rent-to-Income Ratio:
- The primary benefit of checking a tenant's income is to select someone who can appropriately afford the rental property.
- A higher rent-to-income ratio (e.g., 50%) poses a greater risk to landlords, as it indicates a larger portion of the tenant's income going towards rent.
Calculators for Determining Rent-to-Income Ratio:
- The article promotes the use of intuitive calculators to streamline the process.
- Landlords input the renter's monthly gross income and the monthly rent to obtain the rent-to-income ratio.
Calculator Inputs and Outputs:
- Inputs:
  - Renter’s Monthly Gross Income: The total gross income before deductions or taxes.
  - Monthly Rent: The amount of rent due monthly.
  - Gross Income-to-Rent Ratio: A scale used to determine the desired ratio.
- Outputs:
  - Rent-to-Income Ratio: The percentage representing how much of the tenant’s monthly income is needed to pay rent.
  - Renter’s Target Gross Monthly Income: The expected monthly income based on the selected ratio.
  - Renter’s Target Gross Annual Income: The expected annual income based on the selected ratio.
FAQs about Rent-to-Income Ratio:
- What is a good rent-to-income ratio?
- How to calculate the rent-to-income ratio?
- What if a tenant's ratio is higher than 30%?
- Other factors to consider in tenant screening.
Using the Calculators:
- An example illustrates how to use the calculators with specific figures for a tenant's monthly gross income and monthly rent.
- The example emphasizes the importance of adhering to the recommended 30% threshold.
Additional Landlord Resources:
- The article offers insights into other factors landlords should consider during the tenant screening process.
- Recommendations include reviewing screening reports for credit, criminal, and eviction history, as well as collecting previous landlord references.

In conclusion, the article provides a comprehensive guide for landlords on how to use rent-to-income ratio calculators as a vital tool in the tenant screening process. The emphasis on financial prudence and risk management underscores the author's expertise in addressing the challenges faced by landlords.