Rent-to-Income Ratio Calculator
Our New York City rent-to-income ratio calculator can help you evaluate a tenant’s ability to afford rent. It calculates the percentage of a tenant’s gross monthly income that would go towards monthly rent based on the rent amount. This tool is valuable for landlords assessing potential tenants and tenants considering rental listings, as it can help determine if a particular NYC apartment rental is suitable.
ELIKA New York: Real Estate Calculators
Table of Contents
What is the Rent-to-Income Ratio?
For landlords assessing a potential tenant, one of the first things you’ll want to determine is their rent-to-income ratio. More often than not, this figure sets a good tenant apart from a problematic one. The rent-to-income ratio displayed as a percentage tells how much of a tenant’s monthly income will be needed to cover their rental payments. Generally, a good rent-to-income ratio is about 30% of gross income. For most landlords, this is considered the maximum percentage. Any higher than that makes it more likely that the tenant will fall behind on their rental payments.
How Much Rent Can I Afford in NYC?
New York City landlords require 40x the monthly rent in annual income. Our table below is a quick reference to understand the monthly rent you would qualify for based on your yearly income. If you fall shy on income based on the below, you may need a guarantor to meet 80x the monthly rent to proceed. Ready to Rent? Talk to a Rental Expert
|Gross Annual Income||Max Monthly Rent|
What the Calculator Inputs Mean
Our rent-to-income ratio calculator is straightforward to use. Input the following information to get the results you need:
- Tenant’s Monthly Gross Income – This is how much the tenant makes in a month before any expenses or taxes are accounted for. Landlords typically request a tenant’s monthly gross income on the rental application form.
- Monthly Rent – The amount due each month for the rental property.
- Gross-Income to rent Ratio – Most landlords require a tenant’s monthly income to be several times higher than the monthly rent.
What the Calculator Outputs Mean
After entering the correct inputs, you will be given the following results:
- Rent-to-Income Ratio – A percentage representing how much of the tenant’s income will be needed to cover their rental payments.
- Renter’s Target Gross Monthly Income – How much the tenant needs to make each month to satisfy the landlord’s rental requirements.
- Renter’s Target Gross Annual Income – Similar to the above, this tells you what the tenant’s annual income needs based on the landlord’s rental requirements.
How to Use the Rent-to-Income Ratio Calculators
Let’s say you have a potential tenant whose gross monthly income is $10,000 while the rent is $4,000 monthly. After inputting these figures into the first calculator, the rent-to-income ratio would be 40%, too high to meet the maximum threshold of 30%.
Turning to the second calculator, let’s say you need a tenant’s income to be 3.5 times the $4,000 monthly rent, which would work out as a rent-to-income ratio of 29%. After setting the Gross Income-to-Rent Ratio slider to 3.5, you get a Target Gross Monthly Income of $14,000 and a Target Gross Annual Income of $168,000. You now know precisely how much your ideal tenant needs to make to satisfy your rent-to-income ratio requirements.
Why Knowing a Tenant’s Rent-to-Income Ratio is So Important for Landlords
It’s often said that property investment is the surest way to financial independence. Acquire a few rental properties you can lease to eager tenants and then sit back and watch the money flow in. Well, as any experienced investor will tell you, it’s rarely that simple. A serious problem you can encounter is a tenant that can’t keep up with the rental payments you rely on to cover your property taxes and routine maintenance. If it gets bad enough, you may even have to begin eviction proceedings against the tenant, a process that is neither quick nor painless for either party in NYC.
For these reasons, it’s in every landlord’s best interest to evaluate each potential tenant before offering them a lease. Their rent-to-income ratio will be crucial to this evaluation, perhaps even the critical deciding factor. While a rent-to-income ratio of 30% is considered a good measure, it’s up to each landlord to determine what their maximum allowable percentage should be. Some won’t settle for anything above 25%, while others are prepared to tolerate 35%. Just know that the higher the percentage, the more likely the tenant will fall behind on their rent.