Searching for an apartment can feel like trying to sail a boat in a storm. Especially in competitive rental markets, finding the perfect home to rent is not easy. One requirement that frequently pops up is the “3x Rent Rule.” It’s a simple yet crucial formula that landlords love and renters dread. Here, we uncover what the 3x rent rule is and how you can work with or around it.
3x Rent Rule Definition
The 3x Rent Rule is like the golden rule for renting an apartment or house.
“Thou shalt earn at least three times the monthly rent.”
Originating from landlords’ desire for security, this rule ensures that after paying rent, you’ll still have enough doubloons left for bills, food, and maybe even a pint or two. A landlord doesn’t want to rent out his property to someone who can’t afford it. Which makes sense!
Tenants that fall behind on rent can turn into squatters. Dealing with a squatter is an entirely different can of worms that landlords prefer to avoid. Sometimes, landlords will abandon ship once this scenario plays out. Selling a property with tenants is common when rent payments are continuously missed.
Why Do Landlords Use the 3x Rent Rule?
Landlords aren’t just being sticklers for fun. By setting this income standard, they buffer themselves against the risk of unpaid rent. Think of it as their way of making sure you’re not biting off more than you can chew. It also simplifies the screening process, creating a quick benchmark for filtering potential tenants.
Bill Gassett, founder of Maximum Real Estate Exposure, provided some excellent tips on why landlords use the three times rent rule as a general guideline.
“Alex, for as long as I can remember, the 3x rent rule has been the gold standard for landlords’ making sound financial decisions regarding tenant screening. Having a tenant’s gross monthly income at least three times, the rent provides a comfortable cushion. It helps lower the risk of tenants missing payments.
Tenants should be able to cover other living expenses such as utilities, food, and transportation by spending only about one-third of their income on rent. This rule provides an excellent safety net that helps ensure tenants do not get themselves in over their heads financially. Signing a lease you cannot afford isn’t wise.”
How to Calculate Your Income for the 3x Rent Rule
Getting your math on for this rule is crucial. Simply multiply the rent by three. If your gross monthly income (before taxes) is at least that amount, you’re in the clear. This quick calculation can be the first step in assessing your financial readiness for a new place.
You can also work backward when calculating if you qualify for the 3x rent rule. Here’s an example:
- Your bi-weekly paycheck is $3,000
- This is your gross income every other week
- $3,000 x 2 = $6,000
- This is your monthly gross income
- $6,000 / 3 = $2,000/month
- According to the 3x rent rule, you can afford an apartment for rent up to this amount
Use Gross Income
Always gross! Landlords look at your pre-tax income. This means before Uncle Sam takes his share. This gross income measure helps ensure that the assessment is standardized and fair, regardless of your tax bracket.
How do I calculate 2.5 times my rent?
Some landlords might play a little nicer and only require 2.5 times the rent. Just take your monthly rent, multiply it by 2.5, and voilà, that’s your target minimum income. This lower multiplier can often be found in areas with a higher vacancy rate or less competitive rental markets.
What if I Don’t Make 3 Times the Rent?
Don’t throw in the towel just yet! You might be able to persuade a landlord if you show them the following items:
- Exceptional rental history
- Larger security deposit
- Reliable co-signer
Another approach is to negotiate lower rent with your landlord. If you can get the rent lower than three times your monthly gross income, you’ll be in the clear. However, remember that your landlord can raise rents in the future. Although you qualify for the 3x rent rule now, that could change once you renew your lease.
Alternatives to the 3x Rent Rule
Not all landlords follow the 3x rent rule strictly. Some consider a good credit score, rental history, or even your charming personality as reasons to relax the rules. Others might also evaluate your overall debt-to-income ratio, which could work in your favor.
Does Every State Use the 3x Rule?
States like California will commonly use the 3x rent rule, even though rents are already insanely high. Not easy to be a renter! However, this isn’t true for every state.
Joe Boylan of Spring Homes for Rent shared, “While landlords and property managers have used the 3X Rent Rule for years, Colorado recently passed legislation permitting a landlord only to use 2X when qualifying a prospective tenant. While it’s too early to tell how this will impact on landlords, it does make it easier for tenants.”
From the tenant’s perspective, hopefully more states follow Colorado’s path and lighten up!
How to Get Around Income Requirements for an Apartment
Creativity is key. Consider a roommate to split the cost or show additional sources of income like a side hustle. Sometimes, demonstrating savings or getting a letter from your employer can also sway the landlord. Explaining your financial situation transparently can also help, especially if you have cash reserves or non-traditional income sources.
Getting a Co-Signer for your Lease
When your monthly income doesn’t pass the 3x rent rule threshold, consider finding a co-signor for your lease. They must also have a decent monthly income to help you qualify for the rental. This is a quick way to get around the income requirements for an apartment. It’s common for tenants to add a parent, grandparent, aunt, or uncle as a co-signer to dodge the 3x rent rule set by landlords.
As mentioned before, it’s not guaranteed that your landlord won’t raise rents down the road, which could offset your income qualifications. Owning rental properties is getting more expensive over time, forcing owners to increase rents. For example, fixing your roof after a tree falls on it costs way more than it used to. As labor and supply costs rise, so will rents.
How to Show 3x Income
Proof is in the pudding—or in this case, in your pay stubs. Provide your landlord with pay stubs, a W-2, or tax returns to show you meet the income requirements. Sometimes, a good word from your previous landlord or an employment verification letter can also seal the deal. Additionally, a well-prepared tenant can include letters of recommendation or proof of previous rental payments as further evidence of reliability.
