Gross Income vs. Net Income on a Rental Application | A Guide for Riverside CA Renters
Resident FAQ: Applying for a Rental Home
A 3x Gross Requirement on $2,500 Rent Means $7,500 a Month — Know Which Number the Listing Uses Before You Tour
By BRIAN BEAN
Rental Home Advocate | Property Manager | Real Estate Broker
The following is general information, not legal or financial advice. Income requirements are set per property and are subject to change. Check the stated requirements for any individual rental before you apply.
When you apply for a rental home, you are showing a property manager two things:
- You have the ability to pay the rent each month.
- You have the willingness to meet your financial obligations.
Today, we’re focusing on ability, and about the crucial number used to measure it.
Most for-rent ads state an income requirement as a multiple of the rent. They may refer to “gross income must meet or exceed 3 times the rent. …” Insert required factor. Some property managers and landlords require “2.” Others might want “2.5.”
Some even allow a factor based on net income.
So what is the difference?
Gross Income vs. Net Income
Gross income is the top line on your paycheck, what you earn before the tax man takes his piece.
Net income is what you take home, after taxes and deductions are subtracted. It is the amount that actually lands in your bank account.
How a Gross Income Requirement Works
Property managers set income requirements to make sure a renter can comfortably afford the rent alongside everything else each month: food, utilities, transportation, discretionary spending.
If a home rents for $2,500 a month and the requirement is three times gross income, the household needs to earn $7,500 a month before taxes.
Why Some Listings Use Net Income Instead
Not everyone has the same spending habits. Some households carry a lot of debt and some carry none, which is where a net income qualification can work as an alternative.
If the criteria allow net income of, for example, two times rent plus the monthly minimum debt obligations listed on a credit report, a household that does not borrow money and does not use credit cards might need only $5,000 a month net on that same $2,500 home.
The point of either is the same: to keep an applicant from putting themselves, and the property owner, in a bad situation because, despite their best intentions, they cannot afford the rent. It is not a perfect science, but it is a framework.
Check the Requirements Before You Tour
Every property manager and landlord can set different criteria, so look before you go see a home.
- Find the income requirement in the listing, and note whether it is gross or net.
- Pull your most recent pay stub and find both numbers.
- Compare them to the requirement before you apply.
Knowing both numbers prevents you from spending time, and possibly application fees, on a home you were never going to qualify for. You are ahead of the crowd if you focus on the property requirements first.
If you have questions about income requirements, or anything else about applying for a rental home, call us at 951-778-9700. You can also find our rental application requirements on our website, dreambigpm.com.
About the Author
Brian Bean is the Broker and founder of Dream Big Property Management, serving residents and property owners across Riverside, Moreno Valley, Corona, and the greater Inland Empire. Dream Big Property Management, CA DRE #02216670. Brian Bean, Broker, CA DRE #01346382.
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Full Transcript
Transcript of the video above — Brian Bean, Broker/Owner and Rental Home Advocate, Dream Big Property Management. CA DRE #01346382. Lightly edited for readability.
Hi, I’m Brian Bean with Dream Big Property Management here in Riverside, California. Let’s talk about income requirements and how to determine if you meet the minimum qualifications for a rental home.
When you apply for a rental, it’s your opportunity to show a property manager or a landlord that you are a good candidate because, one, you have sufficient income, or ability, to pay the rent each month, and two, you have a good rental and credit history, or willingness, to pay your financial obligations each month. Today we’re talking about the ability part, and how property managers measure income to determine if you qualify.
You’ve probably read for-rent ads that said gross income must meet or exceed three, or two, or even two and a half times the rent. Some may also allow net income of a different factor of the rent. And what’s the difference in those anyway? Well, gross income is the top-line money on your paycheck, what you earn before the tax man takes their piece. Net income is what you take home. It’s what’s left after taxes and deductions are subtracted. It’s the amount that actually lands in your bank account.
And here’s why this is important. Property managers set income requirements to make sure that a renter can comfortably afford the rent as well as their other living expenses each month: food, utilities, transportation, discretionary spending. If the gross income requirement for a home is, for example, three times the rent, a home with a rent of $2,500 a month would require a household to earn $7,500 before taxes.
But not everyone has the same spending habits, do they? Some people carry a lot of debt and some carry none, which is where net income qualifications can also be an alternative. If the qualifications also allow net income of, say, two times rent plus monthly minimum debt obligations that are listed on a credit report, a household that doesn’t borrow money, that doesn’t use credit cards, might only need a net income of say $5,000 per month on a $2,500 a month rent.
The point of either is the same: to make sure an applicant is not putting themselves and the property owner in a bad situation, because despite their best intentions, they just can’t afford the rent. It’s not a perfect science, but it is a framework, and you’re ahead of the crowd if you focus on the property requirements.
So before you even go see a home, know the minimum qualifications. Every property, each property manager or landlord, can set different criteria. Look for the income requirement, gross or net. Then check your most recent pay stub and find both numbers. Knowing both will prevent you from wasting time and possibly application fees on a home that you most likely would not even qualify for in the first place.
If you have questions about income requirements or anything else related to rental applications, call us today, 951-778-9700. You can also find our rental application requirements on our website, dreambigpm.com. Also, check out our other FAQs. They are packed with great tips to help anyone find and secure a rental. It’s not just a house, it’s your home. And home is where you build a life.