The people who go into the rental business, or any business for that matter, has a goal of generating income from it. The tenant’s ability to pay rent is a huge factor in determining the business’s success. So that is the reason why an applicant’s income is validated during the tenant screening process. How can you tell if they can afford to pay the monthly rent?

I will tell you how you can compute the tenant’s rent-to-income ratio. There are different formulas that you can use for this. The important information you will need is the tenant’s income.

You may ask, is this necessary? Yes, it is. You would not want to recommend someone to a landlord without knowing if they can pay. It will only lead to problems in the future.

Here are the different ways to compute a tenant’s rent-to-income ratio:

• Fixed percentage

To compute, you need to determine a tenant’s gross monthly income and multiply it by 0.3.

For example, the property you are trying to rent out costs $2,500. Your tenant makes $7,500 every month.

$7,500 x 0.3 = $2,250

With this result, I would suggest that you try to look for other applicants who can afford the property. A tenant who makes $7,500 a month can only spend a maximum of $2,250 for rent. They might compromise the rental payment for other expenses.

• Multiplying the cost of rent by three

With this formula, if the result is less than the tenant’s monthly income, you can recommend the applicant to the landlord. For example, the tenant has to pay $3,200 per month for rent.

$3,200 x 3 = $9,600

If the tenant makes $10,000 a month, it is safe to say that he is capable of paying the cost of the rent.

• Annual gross income

Using a tenant’s annual gross income can help you determine how much they should earn every month to check if they are qualified.

For example, a tenant’s annual income is $82,000. You can divide that amount by 12 to get the value of their monthly income.

$82,000 / 12 months = $6,833

The next step is to multiply the cost of rent by three, just like the second formula. This is to check if it is less than the tenant’s monthly income. Let’s say the rent costs $2,500 a month.

$2,500 x 3 = $7,500

Since the tenant earns less than the amount, it is not recommendable to approve their application. The tenant has to earn at least $7,500 a month to qualify.

All of them are easy, and all of them are helpful too. You can test it out the next time you are screening for tenants. Try using Padleads to post property listings. You will gain applicants in no time because not only can you post listings, you can also syndicate them to other websites. Your ad will reach more people, so it increases your chances of finding the perfect tenants.

The landlord will appreciate it if you find a tenant immediately because that means they got their money’s worth. However, it does not mean that you will approve the first application you get. Since renting out is not on a first-come, first-served basis, you can thoroughly screen all the qualified applicants.

But then again, someone’s income is not the only thing to check. There are other aspects to take into consideration. Getting a tenant is a good thing, but getting the best one out there is better.