Screening a $725 room, do I use the same income test as a whole house?

Question

First rental is close and it might be a three room house rather than the duplex I started looking at, so I've been rewriting my screening criteria and the income rule breaks immediately.

On a whole-unit lease the common rule of thumb is gross monthly income at three times rent. On a $1,900 house that's $5,700 a month and it screens out a lot of people, which is the point. Apply the same multiple to a $725 room and you get $2,175 a month, which is close to full time work at a modest wage. It feels like almost no filter at all. The person who can pay $725 out of $2,175 has very little slack, and in a shared house their trouble becomes four people's trouble.

So the options I can see: keep 3x and accept that room rentals screen loose by design, raise the multiple to something like 3.5x or 4x because the per-person rent is small and the buffer matters more, or drop the multiple and use a flat income floor, say $2,800 a month regardless of which room they take.

The flat floor is interesting to me because my $650 room and my $800 room shouldn't really have different tenants. Same house, same shared kitchen, same everything.

Any screening standard has to be applied the same way to every applicant and fair housing rules bite here, so I'm asking about the shape of the rule and not about anyone's specific application. Which one would you write down?

laurenkim53 · Answer

The flat floor makes sense to me for exactly the reason you gave, the rooms differ by $150 and the tenant experience is identical. In my low price markets the multiple test collapses even further. A room at $475 gives you a $1,425 income test and almost everyone with a job clears it, so the multiple stops telling you anything and the rest of your screening has to carry the weight. Payment history over the last two years told me more than income ever has.

marcus_hale41 · Answer

@wren one adjustment to the arithmetic. The 3x rule of thumb exists because rent is usually the applicant's largest single expense, and it isn't in a shared house. A room renter often has a car payment that's a third of their rent and utilities bundled in, so the same multiple leaves them with more real slack than a whole-house tenant at 3x. That cuts against raising the multiple as far as 4x.

What I'd actually write down is a floor plus a look at total fixed obligations. Income floor to get in the door, then rent plus car plus student loan plus any child support against gross, and I care much more about that ratio than the rent multiple. It's more work per applicant, and per-applicant work is the whole complaint about this strategy anyway.

Whichever you pick, write it out before you list, apply it identically to everyone, and have someone licensed in your state confirm your criteria and your written notice practices are compliant. Screening rules and required disclosures vary by state and by city.

priya_n21 · Answer

I voted flat floor. The thing I'd want to know if I ever do this is what happens when the person who fails your floor is the current tenant's coworker and the current tenants really want them in. That's the pressure I'd fold under, and having a number written down before anyone asks seems like the only defense.

Screening a $725 room, do I use the same income test as a whole house?

3 replies