The 3x Rent Rule

[Arnie Guida]

I've wanted to ask this for a while but have been reluctant for fear the answer should be obvious, and/or it's been covered ad nauseum...so please accept my apology if either are true.

With the 3x rule, how is it affected by the number of people living off of that income? A single person by themselves making 3x the rent is much different than a young couple with two toddlers making 3x the rent...one mouth versus four mouths on the same income.

How is the income to rent ratio figured "per mouth to feed"?

Thank you,

Arnie

[George P.]

as a family, they should make 3x the rent.

no difference if you or they were applying for a home loan. the banks know that 33% goes for housing.

[John McCombs]

I have looked at rental applications before that listed HUGE car payments and student loan payments and despite that they did earn 3X the rent, they ended up not being the best "match" for my rental.

[Steve Babiak]

I've seen similar to what John McCombs pointed out; car loans totaling up to almost what the rent was - those are not good prospects.

But for people with or without kids, I still use 3x, and then I look at their monthly obligations as itemized on their credit report to see if they are on the hook for something big per month. Feeding their family doesn't seem to make them go broke - the other spending is the issue usually.

[James Vermillion]

The 3x rent rule should be called the 3x rent guideline, as it is but one data point on the financials of potential tenants. I use the 3x rent rule as a qualifier and then look at the rest of the scenario (car payments, student loans, other debt) to make a decision. As far as the initial question...I use the 3x rent "rule" regardless of number of people but look at other obligations.

[Rob K.]

I'm amazed at how many calls I get from people who make about 1.5 times the rent. They usually want to argue with me and say they CAN afford it. I always ask them if they eat cardboard sandwiches.

One lady screamed in the phone, "I get food stamps, stupid!"

I guess I'm the stupid one.....

[James Vermillion]

Originally posted by Rob K:
I'm amazed at how many calls I get from people who make about 1.5 times the rent. They usually want to argue with me and say they CAN afford it. I always ask them if they eat cardboard sandwiches.

One lady screamed in the phone, "I get food stamps, stupid!"

I guess I'm the stupid one.....

Geez Rob, you big dummy! You have the best anecdotes!

[Aly W.]

Rob K's obnoxious food stamp tenant does have a point - other than being rude.

My husband and I have 2 rentals in a low income area. These people do indeed get food stamps, utility assistance, health care, etc. One of our tenants doesn't have a car and takes a bus to work. She doesn't make 3x the rent, but has been able to pay it.

[Bill Gulley]

And therein lies the basis for the income discrimination toward sources of income and government assistance.

Look to the amounts of assistance, it is treated as income. The other thing to look at is the time assistance has been received and the likelyhood of such income being received in the future.

While I realize landlords use 33%, I qualified differently, as in lending.

You need to be consistant and have a written renatal policy, it may state 24% of personal debt and 33/36% toward rents with compensating factors.

Compensating factors may be that you have a single tenant and ratios of 20%/40%, good or decent credit, no other issues and that tenant may be fine looking at the big picture. I have had a few with no personal debt, so 40% was doable, one lady was slightly over that but had no other debt, with expectations of additional income from a part time job with family, so it was a yes and she was a very good tenant.

Guess what I'm saying is look at the big picture, give yourself some leeway in your policy and take the best applicant. Don't nail applicants down to one ratio. :)

[Tevis Verrett]

Originally posted by Bill Gulley:
And therein lies the basis for the income discrimination toward sources of income and government assistance. . . .

Guess what I'm saying is look at the big picture, give yourself some leeway in your policy and take the best applicant. Don't nail applicants down to one ratio. :)

Very wise Bill Gulley!

Out here in the city of the angels (Los Angeles) many renters are former home owners that lost or walked away from their upside down hyperinflated homes.

So the credit ratings I have seen look like 10 miles of bad road, and while income is stable at 3x we have had to evolve with the market pressures.

So it is now a big picture proposition (how we look at prospective tenants).

Hope this 0.02 has helped,

Tevis

[Bill Gulley]

Yes, Tevis, if you can't apply market conditions within your policy you need to change your policy. Ratios or reality?

[George P.]

most (if not all) my tenants have either filed for bancrupcy or lost their house. or both.

i just look at the credit report. i do not consider it solely.