The 3-3-3 rule is a simple screening framework many investors use to quickly judge whether a rental property’s cash flow and financing terms are worth a closer look. While different investors tweak the details, the most common version checks three “3s” before you spend hours underwriting: roughly 3% down payment (or equivalent low-cash financing), around a 3% interest rate target (or a rate you can realistically buy down to), and about a 3% monthly rent-to-price ratio (monthly rent near 3% of the purchase price). In plain terms: it’s a fast “does this even pencil?” test.
Our team sees the 3-3-3 rule used as a first-pass filter, not a final decision tool. If a deal fails the quick test, you either negotiate harder, adjust your financing strategy, or move on. If it passes, you still underwrite the property line by line—income, expenses, reserves, debt service, and a realistic plan for operations.
This is the easiest part to calculate: divide expected monthly rent by purchase price. Example: $3,000/month on a $100,000 purchase is 3%. Many stable markets won’t hit 3%, so treat it as a speed test—not a universal rule. For small multifamily, use the total scheduled rent for all units, then adjust for vacancy and credit loss.
These are less literal today. Instead, use them as a reminder to pressure-test your capital stack: how much cash you’ll actually need at closing, whether mortgage insurance applies, and what rate you can lock with today’s products. If you’re using house hacking, seller financing, or a loan assumption, your “3% down” may be achievable even when conventional investment loans require more.
The rule doesn’t account for taxes, insurance, utilities, repairs, payroll, capital expenditures, or rent growth limits. It also ignores property condition and management complexity. After the quick screen, move into full underwriting and an operations plan. If you want a practical, step-by-step approach for evaluating small multifamily deals—from underwriting to financing to running the asset—see our guide: small multifamily investing: underwrite, finance, and operate.
Neither is “better” universally; they’re different levels of strictness. A 3% target is a tougher filter for cash flow, while a 2% target may be more realistic in many markets but still requires full underwriting to confirm expenses and debt coverage.
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