Income to Rent Ratio

[yieldmatters]

All,

I'm interested to know what is "typical" for a renter to spend on rent as a percentage of income. You would see people's incomes on their rental applications so must have some idea if you've held a rental property for sometime.

I'm particularly interested about the top end of the market. Does the 30% guide hold? i.e. Would a household renting a $700 / week house be bringing in $2000+ / week net? Or is their income typically much higher?

 

[landlubber]

YM ... it's not that simple. Give you an e.g. Rented my last reno a few months ago. Supposedly to a young couple , that's what the application said. Got a "fix -it" call recently to shift a lock ..(door had moved in the dry). No problems. Get there and 3 cars in the driveway. Quite obvious there is a couple in one b/r plus a girl in the other b/r ..all sharing the house. So household income is a "variable" in this business. All I can tell you is I'm putting rents up (usually by about $20 to $30 per week) every 6 months and nobody is moving out .
LL

 

[yieldmatters]

So household income is a "variable" in this business.

They give you an income on the application though (even if it does move around) - was wondering what the ratio normally is (or what you look for as a ratio - maybe that is a better guide). That is, do you like to see after tax income at least 3 times the rent?

 

[Strannik]

30% is what the real estate generally target
a bit hard to achieve nowadays though, with recent rent rises

 

[RumpledElf]

Sucks to be unemployed and renting these days. The dole is a mere $220 a week (much less than Rudd's precious pensioners get), so you'd have to cram several unemployed in a house so they can afford anything.

 

[HiEquity]

All,

I'm interested to know what is "typical" for a renter to spend on rent as a percentage of income. You would see people's incomes on their rental applications so must have some idea if you've held a rental property for sometime.

A $350/wk house - around 45% of gross income (others circa 20% at this level)
A $700/wk house - around 15% of gross income.

Difficult to get meaningful results from that... but you can see how it is easy to form an opinion that there is plenty of room for rent rises yet...

 

[landlubber]

...but you can see how it is easy to form an opinion that there is plenty of room for rent rises yet...

Gotta give this a huge "thumbs up". If you're a renter then (1) you've had no pain from the IR rises over the years. (2) If you have a small car or use public transport, the petrol price hike has also had nil or very little effect.

But they've had all the salary increases over the past few years. Renters have had an absolute dream run. I started a thread awhile ago, where a press article said, overall, renters STILL had it better now than in 2001.

Plenty of cash for latte's there! Put your rents UP and keep doing it.
LL

 

[manderson]

Gotta give this a huge "thumbs up". If you're a renter then (1) you've had no pain from the IR rises over the years. (2) If you have a small car or use public transport, the petrol price hike has also had nil or very little effect.

But they've had all the salary increases over the past few years. Renters have had an absolute dream run. I started a thread awhile ago, where a press article said, overall, renters STILL had it better now than in 2001.

Plenty of cash for latte's there! Put your rents UP and keep doing it.
LL

But I just got a new FPV Falcon for me and a new Prado for the wife, and I have that holiday in Italy in a few months and Deidre will be buying loads of shoes while I do some laps in a Ferrari.

We cant afford no rent increase

 

[buzzlightyear]

All,

I'm interested to know what is "typical" for a renter to spend on rent as a percentage of income. You would see people's incomes on their rental applications so must have some idea if you've held a rental property for sometime.

I'm particularly interested about the top end of the market. Does the 30% guide hold? i.e. Would a household renting a $700 / week house be bringing in $2000+ / week net? Or is their income typically much higher?

YM, in the process of going through applications for a 3br property in Windsor/Prahran (Melb). Rent is $660pw. This is the property.

Applications have generally been by 2 or 3 persons. For those with 2 persons, ratio has been (gross only) approximately 20-25%, whilst for 3 people, around 15-20%.

As a quick comparison for an OO to purchase the same property (based on some recent comps), assuming 20% deposit , at 7%, interest only, loan repayments would be around 30-35% of each's gross income for 2 people. Of course the deposit plus costs would be in the vicnity of $200,000.

 

[gerd.]

Hi BL

Great reno in & out.

Curios as to why engage an agent in Northcote.

Gerd

 

[buzzlightyear]

Hi BL

Great reno in & out.

Curios as to why engage an agent in Northcote.

Gerd

Gerd, I am actually self managing.

The agent currently manage an IP for me in Northcote. I asked them to advertise it re.com.au for a fee and I would field all calls. Given there is no other way an individual can list their properties on re.com and domain.com would cost $352 for me to do it, I thought this was the best way in terms of reach and cost.

 

[RumpledElf]

Still umming and aaahing about renting ours out or moving into it .. but we'd expect the rent to be $150-190pw (probably at the higher end of that given how nice the place is turning out) and the median income for the town was $400pw in 2006, which with two people renting it is somewhere around 20-25%. Would be way more than that to buy the place (about $260pw based on market value of a finished reno) but less than that for us who bought low and fixed it up ($130pw).

Those figures are pretty standard for an older style cottage and get really screwy on the new houses that rent for $250pw+ but cost almost $500pw to buy, and they sell for really not a lot more than they cost to build. Big new houses are expensive ...

 

[terrence]

But I just got a new FPV Falcon for me and a new Prado for the wife, and I have that holiday in Italy in a few months and Deidre will be buying loads of shoes while I do some laps in a Ferrari.

We cant afford no rent increase

You're an idiot if you think anyone lives like that.

 

[Francesco]

You're an idiot if you think anyone lives like that.

Gee, a bit more courtesy would be appreciated. If I read it correctly, Manderson was claiming that his family lives like that and so he needs the rent to increase on his tenants to support his family.

 

[DavidMc]

Funny thing is some tenants DO live like that.

My mum rented out our old family home in a modest outer suburban area 40kms+ from Melbourne.

She was renting it out for $250pw - 10 year old 26sq+ 4x2x2, new estate type thing, maybe worth $300k.

When I told her this was massively undermarket, she agreed to raise it to $260pw. The tenants went balistic. Threats were made and they eventually moved out.

Turned out my sister ended up buying it and now lives there. For the last year she has been getting all kinds of debt collectors knocking on their doors and mail such as:

• 'Thank you for your inquiry into McElite Private school for Girls' ($20k per year fees)
• 'The BMW platinum club!'
• 'Add the movie pack on your Foxtel today!'
• and so on...

Also when they left we had to patch up the holes in the plaster in the Master Bedroom where they decided to wall mount a plasma without us knowing...

All that and they left over a $10pw rent increase? (the first in years)

So yeah, not the majority but they're out definately there...

 

[landlubber]

You're an idiot if you think anyone lives like that.

Now, now.... peace brother ...We're entering the Obama age... I'm sure manderson had his tongue firmly in his cheek when he posted.

But also, there is many a grain of truth in what he says. When a tenant vacates, I'm always amazed at the number of cartons for "TVs,gadgets, etc" that they seem to leave "under the house".
LL

 

[BayView]

Back to Yield's post;

I was once informed by a friendly Bank manager who was like a father to me (god; where are they all now) that a comfortable level of debt for anyone to be in - all debts; home, car, credit card is less than 50% of their income.

Around 35% to be more precise.

So, no matter what your income, this is a good guide. Replace house loan with rent if you like.

Of course; anyone on a high income has an enormous opportunity - live like the person on the average income, with all their (average person) same expenses and invest the difference.

But guess what; many high income earners would opt for the $1k p/w rent place because they can afford it, rather than the $300 p/w rent place.

They would opt for the brand new Beemer on a "lease" instead of the 2 year old Ford focus, and eat out at restaurants 5 nights instead of cooking at home, wear $200 Nike runners instead of the $60 Dunlops, and so on.

High income and financial intelligence are often not in the same sentence. Doesn't necessarily mean they will be a good paying tenant if they have a high income either.

We've never checked the level of our tenant's incomes; just their job situation and rental history previously.

 

[landlubber]

High income and financial intelligence are often not in the same sentence.

Absolutely true. "The Millionaire Next Door" is a great read in this regard. High income doth not a wealthy old age make !!
LL

 

[alplant]

All that and they left over a $10pw rent increase? (the first in years)

We have tenants who are about to move out because of a $15 per week increase. They have been paying $205.

They have been there four years and their rent has risen $20 over that time. We never put it up more than $10 before and this time they obviously think it is too big a jump. The PM recommended we put it up more like $30 or $40 because in her opinion that's how far under market value it is. We decided not to do that because they were such good tenants but now hopefully we will get new ones at the right market price. Fingers crossed.

The PM has already been showing people through and the place isn't even empty yet so it doesn't sound like the increased rent is putting people off, but we don't have a contract yet, it's early days.

When we bought our first IP the first lot of tenants we got talked us down on the rent we were asking. That was the norm back in '98 before the boom. People would haggle on the rent. How times have changed, now they offer more than people are asking in some cases. I think that the economic downturn might change that though. I will be interested to see how we go asking the amount we will be asking. The PM's recommendation is $250. We will reduce it if it sits empty for any time.

The old tenants reckon they have found something for $200 and I didn't think there would be too much around at that price anymore.

 

[redsquash]

Back to Yield's post;

I was once informed by a friendly Bank manager who was like a father to me (god; where are they all now) that a comfortable level of debt for anyone to be in - all debts; home, car, credit card is less than 50% of their income.

Around 35% to be more precise.

The post is too vague ,since on that figure no one could borrow to buy a property,
eg borrow 80 % of a 400k property
Can you eplain what is 35 % and what is debt