3 times the rent "rule"

8 Replies

Hello,

I just read the ultimate guide sticky post about screening and renting.

I have a question about tenant income.
They suggest that a tenant should have at least 3 times the rent in monthly (gross) income.
If we were to use an example of a 3 bedroom apartment for say $1,200 per month. So, each tenant is responsible for $400 each month. That means that each tenant should gross at least $1,200 per month or $14,400 per year!

I think that is cutting it a little too close?

What are your thoughts on that?

Which approach do you use when looking at income?

It really depends where your properties are located. I have gone as low as 2 times the monthly rent in low income areas. Also in very low income areas I often rent $500/mo apartments to people who earn social security disability of $721.

Jermaine here are you renting by the room?

I think about it like I'm qualifying them for a loan. I take their total income minus their debt (which I see on their credit report) which gives me their debt to income ratio. Once you have that number, the rent shouldn't be more than 45% of that number. This is how lenders look at individuals for qualifying for a loan and I implement that when looking at possible tenants.

Just another way to analyze the numbers! Everyone has their way that makes sense to them.

hey thank you for the quick replies.

No, I am not renting by the room. I have one lease for each apartment.

Property is located in a good neighborhood. It's not college ghetto but my city does have a big student body (5+ colleges, and a university).

jermaine here I would stay with the 3 time rule and if you don't have the worm and fussy double your security deposit.

I think that with college students you'd have to adjust that rule. Many students aren't going to be making that much money a month - I didn't when I was employed in college - but I still had all my rents paid on time. Although I could be wrong I'm still working on my first deal.

I anticipate I'd be renting to college students. What you could put in place is making sure you have the parents number and information in case their kid can't pay up. Or if you're really cautious have them co-sign on the lease.

Steven J., Will See Real Estate | 240‑394‑5733 | http://WillSeeRealEstate.com

Yah the 3x rule typically applies to higher end areas, many places go lower. If you have a nice pool of candidates consistently though and you can keep the place filled, than 3x the rent requirement makes sense as it's just another level of screening and can't hurt.

For me the 3X rule is a bit different with multiple tenants. I use 3x total rent is required for one of the applicants or if none meet that then 2x for double and 1.5x triple or more. I want them to be able to cover rent for 1 month if the relationships go bad and someone moves out. Granted they are all on the hook but if the money isn't there they can't pay it. I want some time to re-rent or work something out and their income can buy some time.

Medium rre 1to1 small sizeBill S., Reliant Real Estate, Inc. | 720 207‑8190