3-3-3 Rule

The 3-3-3 Rule in Real Estate Purchases

When it comes to buying land or investing in property, having a clear plan helps you avoid financial stress and make confident decisions. The 3-3-3 rule is a simple but powerful guideline that helps you assess readiness before making a real estate purchase. Whether you’re buying a home, a rental property, or rural land in Utah, this rule helps ensure that your finances, research, and long-term goals align before you commit. It’s a formula that keeps investors grounded, realistic, and prepared for the unexpected challenges that come with property ownership.

The "3-3-3 Rule" in real estate is a guideline for buyer readiness, suggesting you should have 3 months of emergency savings, 3 months of mortgage payments saved as reserves, and conduct at least 3 property evaluations (market, comparable sales, future trends) before buying, helping prevent overspending and ensuring financial stability. I do caution that the 3 property evaluations are not always clear to the average buyer, so enlist an agent who can dig into comparable properties. We have also discussed in the past the 30/30/3 rule regarding affordability. Any and all of these rules are great guidelines and protect you as a buyer from an “Emotional” purchase, which can lead to discomfort.  The 30/30/3 Rule focuses on affordability: keep monthly housing costs under 30% of gross income, save a 30% down payment/reserve, and ensure the home price isn't more than 3 times your annual income. 

The 3-3-3 Readiness Rule

• 3 Months Emergency Savings: A financial cushion for unexpected events like job loss or major repairs. 
• 3 Months Mortgage Reserves: Extra cash to cover payments during income fluctuations or vacancies. 
• 3 Property Evaluations: Compare the home with similar ones, research local market trends (past 3 years), and check future development plans (next 3 years). 

I have heard numerous stories where a new buyer was shocked at the additional costs involved with a purchase. There is no need for surprises. Have your agent work with the Escrow company to give you a buyer’s statement showing all expenses. In Silicon Valley, coming up with 20% (which is typical for any lender) is often a surprise. With homes in the $1M range, $200,000 is jarring just to start. Then add on all the other fees of 3-3-3- and maybe you wait another year to buy that home.