What Is Rent-to-Income Ratio?

The rent-to-income ratio is the simplest and most reliable tenant screening metric. It answers one question: can this person afford the rent? If someone earns $3,000 per month and your rent is $1,500, half their income goes to rent. That is a recipe for missed payments.

The industry standard is the 30% rule: rent should not exceed 30% of gross income. This means the tenant needs to earn at least 3 times the monthly rent. It is not perfect, but it is the best quick filter you have.

How to Calculate the Ratio

Rent-to-Income Ratio = (Monthly Rent ÷ Gross Monthly Income) × 100

Or flip it: Minimum Required Income = Monthly Rent × 3

Your rent is $1,400/month. Minimum income required: $1,400 × 3 = $4,200/month ($50,400/year).

An applicant earning $4,800/month: $1,400 ÷ $4,800 = 29.2%. They pass.

An applicant earning $3,500/month: $1,400 ÷ $3,500 = 40%. They do not pass.

Use gross income (before taxes), not net. This is the industry standard. Gross income is easier to verify from pay stubs and tax returns, and it is more consistent across different tax situations.

Why 3x Rent Is the Standard

The 30% threshold comes from decades of housing data. When rent exceeds 30% of income, the likelihood of missed payments increases significantly. Tenants become "cost burdened," meaning they have to make hard choices between rent and other expenses.

At 30%, a tenant earning $4,500/month has $3,000 left after rent. That covers food, transportation, utilities, and some savings. At 50%, they only have $2,250 left, and one car repair or medical bill pushes them into missed rent territory.

This is not just theory. In my experience managing 12 units, every tenant who consistently paid late had a rent-to-income ratio above 35%. Every single one. The ones at 25-30% almost never missed a payment.

How to Apply It in Tenant Screening

Step 1: State your requirement upfront. Your rental application and listing should say "Income requirement: 3x monthly rent." This filters out unqualified applicants before they apply.

Step 2: Verify income. Require recent pay stubs (last 2-3 months), a verification of employment letter, or tax returns for self-employed applicants. Do not take their word for it.

Step 3: Apply consistently. Every applicant gets the same income requirement. No exceptions based on who they are, how they look, or how nice they seem in person. Consistency protects you from Fair Housing complaints.

Real Example: Screening Two Applicants

Your unit rents for $1,500/month. Minimum income: $4,500/month.

Applicant A: Full-time job earning $5,200/month. Rent-to-income: 28.8%. Good credit (720). No eviction history. This applicant easily qualifies.

Applicant B: Part-time job earning $2,800/month. Partner earns $2,000/month. Combined income: $4,800. Rent-to-income: 31.2%. Technically close to the threshold.

Applicant B is a judgment call. Their combined income meets the 3x threshold, but if the partner's income disappears (breakup, job loss), the primary applicant cannot cover rent alone. Some landlords accept combined income. Others require the primary leaseholder to individually qualify. Set your policy and stick to it.

When to Adjust the 3x Rule

The 3x standard is a guideline, not a commandment. There are valid reasons to adjust:

Higher rent units: If your unit rents for $3,000/month, requiring $9,000/month income ($108,000/year) makes sense. But for luxury units at $5,000+, you might drop to 2.5x because higher-income tenants have more financial flexibility.

Lower rent areas: In markets where average rent is $800/month, requiring $2,400/month income is reasonable. But someone earning $2,400 in a low-cost area may be more financially stable than someone earning $4,500 in a high-cost area.

Strong compensating factors: An applicant with a 780 credit score, $50,000 in savings, and a perfect rental history might warrant flexibility even if their income is slightly below 3x. The key is having a documented policy for exceptions.

Common Mistakes

Not verifying income. An applicant says they earn $5,000/month. You take their word for it. They actually earn $3,200. Now you have a tenant who cannot afford the rent. Always verify with documentation.

Using net income instead of gross. Net income varies based on tax withholdings, 401k contributions, and deductions. Gross income is consistent and standard. Use gross.

Inconsistent application. Requiring 3x for one applicant and accepting 2x for another is discriminatory unless you have a written policy explaining when and why exceptions are made. Apply the same standard to everyone.

Ignoring other debt. A tenant earning $5,000/month with $1,500 rent looks fine at 30%. But if they also have $800/month in car payments and $500/month in student loans, their total debt-to-income is 56%. Consider requiring total debt-to-income under 50% alongside the rent-specific ratio.

Frequently Asked Questions

What rent-to-income ratio should landlords require?

Most landlords require 30% or less, meaning the tenant earns at least 3x monthly rent. For a $1,500 unit, that means $4,500/month ($54,000/year) minimum gross income.

How do you calculate rent-to-income ratio?

Monthly Rent ÷ Gross Monthly Income × 100. For $1,500 rent and $5,000 income: 30%. Or simply check if income is at least 3x rent.

Is the 30% rule a legal requirement?

No, it is an industry standard guideline. You can set your own income requirements as long as they are applied consistently and do not violate Fair Housing laws. Document your criteria in your lease and screening policy.