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Q & A With America’s Real Estate Professor: Standard Tenant Rent to Income Percentage

Published:   |   Updated: January 2, 2014 at 08:44 AM

Standard Tenant Rent to Income Percentage

Q. What is the percent of income plus debt that is customarily allotted by a tenant for rent and what percent should we as landlords accept to better ensure our tenants can pay the rent? Also, what is the best way to verify a prospective tenant’s income? Tim C., Oceanside, Calif.

A. Renters are often going to be up to 50 percent rent plus debt to income – sometimes more! Most are going to be spending all of their monthly income on rent, debts, utilities and food and will have very little to put into savings. If their rent to income levels were lower, they’d probably be buying a personal residence instead of renting.

So when you think through their overall debt level and what works for you to accept, you need to look at their entire income and payments, consider how long they've been at their job, how secure is their job, what their prior landlord has to say about their payment history and if they have any past accounts in collections. You must look at everything to help you form an opinion on their ability to pay rent.

A longer-term job and good rental history shows an ability and willingness to pay their rent. However, there are no easy answers on what credit factors you should accept for a tenant. No tenants have a perfect credit, income, job or rental history, so keep that in mind.

For income verification, ask for paystubs and call and confirm their employment. Good luck.

Condo Purchase Noise Nuisance

Q. I recently bought a condo in a high rise in Fort Lauderdale. Shortly after moving in, I noticed a constant annoying buzzing in every room except the master bedroom. There is a transformer room across the hall from my unit which is thought to be the reason for this problem. The condo board does not seem concerned about this as my unit is the only one affected by the problem. Is the board responsible for remedying this problem since the transformer is a common element of the building? The transformer is owned by Florida Power and Light, and I am told the building would be responsible for replacing the transformer. I fear that this buzzing problem will lessen the value of my unit. Ken L., Ft. Lauderdale, Fla.

A. I am sorry to hear about this issue. And unfortunately there may not be an easy answer for your situation. You’re going to need to talk to an attorney about specifics in your situation. But here are a few items to consider.

Is the noise a material issue to the sale of the property? Obviously you believe it is, but how loud is the noise emanating from that room? Would a typical person find it annoying? Or maybe are you a person very sensitive to noise, like me. The level of the noise might be an important issue. Anyone can claim noise is an issue, but the legal question would probably revolve around whether or not the noise would be disturbing to a reasonable person of normal sensibilities.

If it is a material issue, and the prior owner knew about the noise, he or she probably should have disclosed it to you in the purchase. If they didn’t, you might have a case against them. If it was a bank seller who never occupied the property, the bank probably did not know and obviously the bank staff couldn’t disclose it if they didn’t know. The condo HOA board is probably not legally responsible to disclose anything like this about one of their units even if they knew, which they probably do not. Talk to an attorney regarding past case law on this issue.

You should first try to work diplomatically with the condo board of directors. But you need to first do the hard work yourself to find some possible solutions. If you do that, maybe they’ll pay for it, or at least maybe might chip in some money to solve it. Most likely they will assist, as long as you’re helpful and reasonable.

I’d work with the utility company first to find out about noise reduction strategies they’ve certainly used before in other similar situations. Hopefully there is a good solution. Noise proofing might do the trick, but it might not. So figure out if there is an answer to the issue and the cost, and propose it to the BOD. Alert them that you want to be a happy homeowner and this could happen to anyone, including one of them, so hopefully they’ll be sympathetic and financially helpful. They have the power of the purse.

If you bought it from a party who didn’t know about the noise, and there isn’t a noise proofing solution, you may unfortunately be out of luck and it probably will diminish the value. Unfortunately, if you sold it, you would need to disclose it to the next buyer and obviously that would be an issue.

Hopefully you can find a solution and work out a financing plan to solve it. Good luck.

Leonard Baron, MBA, is America’s Real Estate Professor®. His unbiased, neutral and inexpensive "Real Estate Ownership, Investment and Due Diligence 101" textbook teaches real estate owners how to make smart and safe purchase decisions. He is a San Diego State University lecturer, blogs at Zillow, and loves kicking the tires of a good piece of dirt! More at ProfessorBaron.com. Email your questions to: Leonard@ProfessorBaron.com

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