Can Tenant Afford The Rent?
For the first time, since buying the property, I am advertising two apartments. Is there a standard formula or percentage of income that I should use to determine if a perspective tenant can afford the rent and utilities? Thanks, cataman
Monthly income must equal approximately three (3) times monthly rent.
Thanks, would that be gross income or after tax?
Quote:
On 2005-08-03 11:22, cataman wrote:
Thanks, would that be gross income or after tax?
I use gross as a general rule, but you need to factor in what other monthly payments they have (child support, auto, school loans, etc.). Bottom line, it neds to be realistic that they can afford to live there.
I have been doing this for years but heard the best formula a few weeks ago from BIll Bronchick at one of his weekend seminars.
"80% of ARV -repair costs = a good deal".
In my experience he is right on and I try and evaluate all that way.
[addsig]
I would suggest picking up What Every Real Estate Investor Needs to Know About Cash Flow by by Frank Gallinelli. Great book to give you a complete understanding of cash flow. (link below)
http://www.amazon.com/exec/obidos/tg/detail/-/0071422579/qid=1123094684/sr=8-10/ref=pd_bbs_10/104-3656993-1619117?v=glance&s=books&n=507846
Half of the reviews of that book say it is so filled with errors that it is practically useless.
If you are talking about properties to buy and hold for rental income, DO NOT MAKE BUYING DECISIONS ON RATIOS! You need to learn how to analyze a property so that you can see what it is likely to do once you own it. There is a package under the My Tools section of My TCI called Proformanator that will give you some help. I suggest you learn to do this using a spreadsheet (such as Excel) so you gain more understanding about the flow of money through your enterprise.
Might want to escrow more money for maintenance on a 99 yr old house. (i.e. expect a lot of repairs)
You also have to consider how easy/hard it will be to sell a 100 y/o house in another 20 years. Good shape or not, people may be hesitant about buying an investment that qualifies for "historical site" status.
Most of my apartment buildings are old. I have an 8 unit that was built in 1898 that is absolutely gorgeous. I have done well with my older buildings. Around here new construction is too much. The tenants will not pay that high of rent. Age would not matter at all to me as long as I liked the building of course.
Many thanks to all who took the time to respond. Brian
my policy is no pets after just putting in new carpeting.
If you decide to allow pets, take a Pet Deposit as well as the usual security deposit. Also think about adding $20 or so to the monthly rent. There are few apartments in my areas that allow pets, so renters with pets are willing to pay a premium...
If you decide to have a no pet policy - stick to your guns and just say absolutely no pets, because a cute dog is hard to say no to!
Think about it...
Good Luck!
[addsig]
No pets. Except assisted living animals, of course. I have pets, I love them, but I cover the cost of the damage they do. And no matter how "good" they are, they do some damage, somewhere, sometime. And People are frequently not responsible pet owners.
Awesome,
Thanks everyone for your replies. This helps alot.
To get cat urine out of cement. Try lemon juice.
I keep a no pets policy. I inherited some units that the people already had pets but luckily the former owner had a two page pet addendum to the lease that spelled out everything the tenant was liable for with the animals including the right for the owner to have the animal forcefully removed if the animal was a big enough problem.
Thanks everyone for you replies. This has been a great help to me in making a decision about prespective tenants with pets.