My manager screens at 3x rent, I've been approving at 2.5x with reserves. Who's right?

Question

Nine units, three of them under a manager I brought on last year for the ones furthest from me. Her written criteria say gross income at 3x monthly rent, no evictions in seven years, minimum credit score, verifiable employment. Mine on the six I still handle myself have been closer to 2.5x plus two months of visible savings plus a clean landlord reference going back at least two years.

Her 3x standard has held up. Two placements, both paying on time, but one unit sat 41 days and the other 29 days, and at a $1,250 rent that vacancy cost me more than a month of the difference in rent I might have gotten from a stronger applicant.

My 2.5x-plus-reserves standard has produced one late payer in three years and one tenant who's now in year four and I'd keep forever. It's also produced a much faster fill. In my market, and I think this is the part that matters, 3x of a $1,250 rent means $45,000 a year and there are a lot of good tenants here who don't make that.

Her answer is that a written standard applied identically to every applicant is the defensible one, and the reserves-and-reference version is judgment, which is harder to document. That's a fair hit and it's a fair housing question I'd want a lawyer's read on in my state before I made her change anything.

So is 3x the right screen, or is it a filter that costs more in vacancy than it saves in risk?

paulgrant17 · Answer

First rental closing in a few weeks and I've read maybe forty versions of this. What I've settled on, subject to changing my mind the first time it goes wrong: pick the standard, write it down, apply it to everyone in the order they apply, and keep the notes. @cairn your 2.5x-plus-reserves version can be written down too, that's what your manager is really asking for. "Two months of reserves shown on statements" is a criterion, not judgment. "He seemed responsible" is judgment. Third option on the poll for me.

karen_whitfield · Answer

Forty-one days on a $1,250 unit is about $1,700 gone and you'll never get it back, while the extra risk you avoided by insisting on 3x is a probability, not a number. That asymmetry is why I stopped treating income multiples as the main screen years ago. Payment history with a prior landlord, verified by phone and not by a letter the applicant hands you, has predicted more for me than any income ratio.

But @wren has the operational point. Whatever you use, it has to be the same test for every applicant, written before you see the application. That's the part that protects you, and how the rules apply varies by state and sometimes by city, so get it reviewed once by someone licensed where you own.

My manager screens at 3x rent, I've been approving at 2.5x with reserves. Who's right?

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