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Your 3x Rule Approved One Applicant. Was It the Right One?
•Martin Maxwell•Season 1•Episode 176
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You have two complete applications for one Columbus rental. Your written rule says gross income of at least three times the rent. One applicant clears it at 3.09 times. The other, self-employed, sits at 2.70 times and misses it by five hundred dollars.
Then you run the line your listing never asked for. After rent and debt payments, the applicant who qualifies keeps $2,300 a month. The one who doesn't keeps $2,620. The first earns $650 more and sends $970 more to lenders every month.
So the rule you published is rejecting the applicant with more money left over — and the fastest fix, a one-time exception, is the exact thing written criteria exist to prevent.
In this episode of the 5-Minute PRIME Podcast, host Martin Maxwell walks a $1,650 Columbus rental through three options — follow the rule, bend it once, or rewrite it before deciding — and shows which one fixes the rule instead of the person.
Tune in to learn:
Income in versus money left — why a three-times rule tests gross income and never looks at the $970 a month one applicant owes, and what rent plus debts actually take from each (55% versus 41%).
Why the exception is the dangerous option — how a single "just this once" turns into documented inconsistency, and why written criteria only protect you if they're applied the same way every time.
The rewrite, in the right order — a dollar-based residual line, the same 12-month income evidence for salaried, self-employed and benefit income alike, a written tie-break, and a dated reason for each threshold written before you check who it favors.
Where the rules are local — why an income multiple for a voucher holder is generally measured against the tenant's share of the rent, and why some cities regulate screening order outright.
Have you ever turned down the stronger applicant because of a number that didn't measure what you cared about? And if an applicant asked you tomorrow why someone else got an exception, would your answer hold up? Decide how you'd handle it before you hear the verdict.
Subscribe now to fix the rule before your next listing goes live.
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Welcome to the 5 Minute Prime Podcast. Quick actionable tips to master personal finance and real estate investing. In just five minutes a day, we'll help you build wealth and achieve financial freedom. Hey Prime Investors, Martin Maxwell here. Welcome back to the 5 Minute Prime Podcast. Two
applications for one rental, both clean, and the one your own rule turns down is the one with more money left at the end of every month. Say you own one rental in Columbus, Ohio. One side of a side-by-side double. You paid $235,000 for it. It rents for $16.50 a month, and right now it's empty. Your listing spells out the rules. Gross monthly income of at least three times the rent, so $49.50 a month. Plus a credit check and a rental history check. That's the rule most small landlords run. Two complete applications come in the same week. Both pass credit, both pass history. The first applicant is salaried, $5,100 a month. Gross. That's $3.09 times the rent. Clears the bar with $150 to spare. Car payment and a student loan together, $1,1150 a month. The second applicant is self-employed, $4,450 a month from 12 months of deposits checked against her tax return. That's 2.7 times the rent. Short of your rule by $500. Debt payments, $180 a month. On the rule you published, it isn't close. The salaried applicant qualifies, the self-employed applicant doesn't.
Then you run one more line, the one your listing never asked for. What does each person actually have left after rent and debt payments? Salaried applicant. Read that again. The applicant your rule rejects keeps $320 more every month. The salaried applicant earns $650 more a month and sends $170 more to lenders. Your rule sees the first number. It never sees the second. And the self-employed applicant has the longer on-time rental record too. So you're looking at the file your rule says no to, and it looks like the safer tenant, and you're tempted to just make an exception. So,
three options. Pick one before I tell you mine. Option one, follow the rule you published. Approve the salaried applicant. The criteria were written before anyone applied, and that applicant clears them. You don't regrade the test after you see the answers. Option two, make an exception for the self-employed applicant. Just this once. The three times rule is a rough stand-in for can this person afford the rent? And this person plainly can. Option three, rewrite the criteria before you decide. Add a dollar test, money left after rent and debt payments with the same income evidence for every kind of income. Publish it and run both applications through it the same way. Three options. Hit pause, decide, then come back.
Alright, first, if you've run the three times rule for years, you're not wrong. It's a fast, honest, first screen. It just answers a narrower question than most of us think it does. It asks one thing. Does gross income clear three rents? It never asks where the money goes after that. Put rent and debts together and look at the share of income they take. For the salaried applicant, 55%. For the self-employed applicant, 41%. That's the debt to income view a lender would run. Plenty of screening services already blend income and debt behind the scenes. The point is that your own written rule doesn't. We made the case on Sunday that a three times rule sits above HUD's 30% cost burden line by construction. And here, both of these applicants are above that line anyway. So the rule was never keeping you out of the burden zone. Now. Option two. This is the dangerous one, and it's not because it's unkind. It feels like judgment, but it's the exact thing written criteria exist to stop. The same rule applied differently to different people. When we built the five-layer screening shield, layer one was writing your criteria down before you list. The book says why in one line. Clarify and document your screening criteria up front for fairness and consistency and to help you comply with fair housing rules. That protection only works if the rule is applied the same way every time. An exception made once for the applicant you liked is an inconsistency you've put on the record yourself. And the next applicant who misses three times and doesn't get one, they get to ask what was different. I had a good feeling is not the answer you want to give. I'm not your lawyer and this isn't legal advice. Option one is defensible. You publish the standard, the salaried applicant meets it, and approving that applicant is consistent. Approve under the rule you posted, fix the rule for the next listing is the more conservative paper trail. If that's your call, you've done nothing wrong. But you'd be knowingly running one more vacancy on a rule you now know measures the wrong number. It's the same idea I keep coming back to with lenders. Clearing a coverage test isn't evidence a deal works. Clearing your own income multiple isn't evidence a tenant can pay.
Option three is the move, because it fixes the rule instead of the person. Here's one version. Rent is no more than 40% of verified gross income, so the ratio stays as a guardrail. At least one month's rent, $1650, left over after rent and every recurring debt payment on the credit report, that's the line that decides. Every applicant documents 12 months of income, whatever the source, pay stubs and a W 2 for a salary, 12 months of deposits or a tax return for self-employment, award letters for benefits, same look back, same bar, and ties go to the first complete application that qualifies. Now the order matters because rewriting a rule after you've met the applicants can look a lot like option two with paperwork. So before you run either file through it, you write down one sentence for each threshold. Why 40%? Why one month's rent? Why 12 months? And you date it. Then you publish the new criteria as the listing's standing standard for every applicant from here on. Not a private one-off for these two files. Now run them through. Salaried, 2300 left, 650 over the line. Self-employed, 2620, 970 over. Both qualify. So the written tiebreak decides it. And if the salaried application landed first, the salaried applicant gets the unit. That's why option three beats the careful version of option one. A rule that can still pick the salaried applicant proves it wasn't built for anybody. And you stop shipping a rule you already know is wrong. And it doesn't prefer salaried income over self-employed income or the other way around. This time the self-employed applicant has more left over. Next time it'll be someone else. One more check. If you rent where source of income discrimination is prohibited, an income multiple for a voucher holder is generally measured against the tenant's share of the rent, not the full rent. And some cities regulate screening outright. Seattle's first in time rule, upheld by the Washington Supreme Court in Yim versus City of Seattle back in 2019, makes landlords post their criteria and screen complete applications in the order they came in. In a place like that, changing the rules for applications already in hand may not be allowed, so check your jurisdiction before you rewrite anything. Here's your challenge. Tonight, pull up the screening criteria on your current listing, or your last one. Add one line. The dollars you want left after rent and debts. Then write down what evidence you'll accept for each kind of income, how you'll break a tie, and one dated sentence on why each number is there. Run your last two approved tenants through the new version. If it would have flipped either decision, that's what the old rule was costing you. Publish the new one before your next vacancy. The full write up, all three options side by side with the numbers, is linked right there in the show notes. I'm Martin Maxwell. This has been the Five Minute Prime Podcast. I'll see you next episode.
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