Author Topic: Higher rent or better tenant?  (Read 9232 times)

wizofloz

  • 5 O'Clock Shadow
  • *
  • Posts: 16
Higher rent or better tenant?
« on: September 19, 2014, 04:03:52 AM »
October first I officially become a landlord for the first time. For those with experience would you prefer to charge more per month or have a quality tenant? What dollar value would you place on a quality tenant, $25, $50, $100/month?

The reason I ask is I agreed to a lower rental rate than I could get in the area because this tenant has a vested interest in the neighborhood so I believe she will take good care of the property. (She owns a business down the block) I live about 4 hours from the house so I placed a premium on the 'trust' factor. Was this wise? I could likely charge 10-15% more if I didn't care who was in the property. Interested to hear thoughts on this.

agent_clone

  • Bristles
  • ***
  • Posts: 252
  • Location: Australia
Re: Higher rent or better tenant?
« Reply #1 on: September 19, 2014, 04:12:52 AM »
A guy I used to sit next to at work would tell me that the best tenants don't pay the highest rates.  He definately chose to rent his units out at below market rate to a particular type of person.  He was happy with the good tenants, they were happy with a good landlord, most of the tenants stayed for several years.

wizofloz

  • 5 O'Clock Shadow
  • *
  • Posts: 16
Re: Higher rent or better tenant?
« Reply #2 on: September 19, 2014, 04:27:45 AM »
I am hoping that proves to be true in my case. During the walk through she talked about planting flowers here, starting a garden there, etc. I am hoping a lack of damage and possibly increased curb appeal will make up for a lower rental price.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5110
Re: Higher rent or better tenant?
« Reply #3 on: September 19, 2014, 04:53:27 AM »
Did you screen the tenant?  Run a credit report?  Check the criminal history?  Talk to former landlords?  If you took the "planting flowers" comment as her reference and did not do the above, you have no idea what kind of tenant you have signed up. 

wizofloz

  • 5 O'Clock Shadow
  • *
  • Posts: 16
Re: Higher rent or better tenant?
« Reply #4 on: September 19, 2014, 05:00:54 AM »
I screened her but much less formally. This is a small town and she is moving from about 4 blocks away. I know several families in the area so I asked around about her. By all accounts she passes as respectable. Plus the ever important Google search turned up her professional history and accomplishments.

jda1984

  • Stubble
  • **
  • Posts: 179
Re: Higher rent or better tenant?
« Reply #5 on: September 19, 2014, 06:57:34 AM »
As Agent_Clone said, some of his coworkers tenants stayed several years.  Long leases (or renewals) at lower rates are better than higher rents and shorter leases.  There's less chance for vacancy and there's less work doing turnaround activities (painting, walkthroughs, advertising, screening tenants, etc.).  I'd go for lower rents and quality tenants.

electriceagle

  • Bristles
  • ***
  • Posts: 485
Re: Higher rent or better tenant?
« Reply #6 on: September 19, 2014, 10:23:56 AM »
Better tenant, definitely.

The extra money that you might get with a less-good tenant is paid for with risk and work. If you really need an extra $60/mo, youre better off working for 5 hours somewhere than working an unknown number of hours and taking risk to boot.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5110
Re: Higher rent or better tenant?
« Reply #7 on: September 19, 2014, 10:40:57 AM »
IMO you made a rookie mistake.  You have to do all of this, no matter how small the town.  Maybe she is having trouble paying the bills and keeping the doors open.  You do not have enough information to let someone move into your property without a full screening.  Fingers crossed this works out for you.

jda1984

  • Stubble
  • **
  • Posts: 179
Re: Higher rent or better tenant?
« Reply #8 on: September 19, 2014, 11:14:59 AM »
IMO you made a rookie mistake.  You have to do all of this, no matter how small the town.  Maybe she is having trouble paying the bills and keeping the doors open.  You do not have enough information to let someone move into your property without a full screening.  Fingers crossed this works out for you.

Good point.  The advice I received from a housing attorney I worked with as we bought our first duplex was "Screen your tenants, and get licensed."  It seemed like every month he represented landlords in 20-30 evictions cases (which went pretty fast).  Not sure if you need to be licensed where your place is, but if you haven't looked into, you should.  Sometimes the fines can be pretty steep.

buckeyenuts

  • 5 O'Clock Shadow
  • *
  • Posts: 7
  • Location: The Great State of Ohio
  • Everything in moderation, including moderation.
Re: Higher rent or better tenant?
« Reply #9 on: September 19, 2014, 11:31:56 AM »
IMO, a better tenant who has the potential to stay in your property for a longer period of time will turn out to a better financial decision. Consider the costs and loss of rental income associated with vacancies, repairs, evictions/legal actions resulting from a less qualified but possibly higher paying tenant. Also the time, money, and effort required to screen replacement tenants should be considered. This could be worth $100+ a month to you. It is to me. The phrase, "penny wise but pound foolish" comes to mind when I consider trading a less qualified tenant for a few extra bucks in rental income a month.

That being said, always perform a thorough and standardized background check on tenants, consisting of income/employment/rental history, current liabilities, and criminal/credit checks and keep all relevant documentation. Also verify all information given to you by the potential tenant. Having a consistent and legal system that you use to screen all tenants can offer you significant protection if a potential tenant feels that you broke Fair Housing Laws and illegally denied them. Good Luck. 

mooreprop

  • 5 O'Clock Shadow
  • *
  • Posts: 85
Re: Higher rent or better tenant?
« Reply #10 on: September 19, 2014, 12:20:49 PM »
Good tenants are definitely worth accepting lower rent, but be careful about how you define a "good" tenant.  For example, we have rented to a good tenant who takes great care of the place, but moves every 3-6 months due to poor relationship decisions.  We have rented to this person twice since she left the place immaculate when she broke her lease the first time and helped us find a a new tenant.  However, I don't think we will rent to her a third time.  It just increases the hassle factor even if she does take good care of the place.

 My number one factor in chosing tenants is whether they will take care of the place and be able to pay the rent, but a close number two is length of stay.  It pays to ask a person who you have checked out and they look good "How long do you plan to stay?".  If someone says "life", then they are my dream tenant.  You lose money and time every time you have to re-rent a place.

wizofloz

  • 5 O'Clock Shadow
  • *
  • Posts: 16
Re: Higher rent or better tenant?
« Reply #11 on: September 19, 2014, 04:00:13 PM »
So it sounds like I made a good decision as far as accepting lower rent but perhaps I stumbled on the qualification of a 'good tenant'. She also requested a two year lease but I felt more comfortable with a one year, saying we could revisit rent price at that time. I appreciate the feedback.

BackNColo

  • 5 O'Clock Shadow
  • *
  • Posts: 18
  • Location: Loveland, CO
Re: Higher rent or better tenant?
« Reply #12 on: September 19, 2014, 04:06:06 PM »
Personally, I have been burned by "good renters" who had good credit and seemed normal. I have a friend that have had their rental destroyed by friend that only rented from them for 9 months before she was forced to evict the guy. It was an ugly situation.

If I ever had to rent again, I would take the money and stop by to inspect frequently. 


Melody

  • Handlebar Stache
  • *****
  • Posts: 1089
  • Age: 30
  • Location: Australia
Re: Higher rent or better tenant?
« Reply #13 on: September 19, 2014, 07:34:49 PM »
I think good tenant and stability may not go hand in hand. I am a young professional making 6x my rent with perfect rental references and a good credit history,.. a good tenant by any measure. But just what makes me a good tenant also means I won't stay long as buying my own place is on the cards. Meanwhile someone on a pension may be a tenant for life (and be quiet ans respectful and do the gardening)...but as they are on a fixed income they will eventually be outpriced from the area (rents have consistently grown faster than government pensions in our economy and will continue to do so). And then you will end up with a nasty moral dillema....

wizofloz

  • 5 O'Clock Shadow
  • *
  • Posts: 16
Re: Higher rent or better tenant?
« Reply #14 on: September 19, 2014, 10:52:30 PM »
The moral landlord, could be a thread of its own I imagine. Perhaps that would be a good book title.

Fishingmn

  • Bristles
  • ***
  • Posts: 335
  • Location: Twin Cities
  • You never have to recover from a good start
Re: Higher rent or better tenant?
« Reply #15 on: September 20, 2014, 03:38:48 AM »
I think good tenant and stability may not go hand in hand. I am a young professional making 6x my rent with perfect rental references and a good credit history,.. a good tenant by any measure. But just what makes me a good tenant also means I won't stay long as buying my own place is on the cards. Meanwhile someone on a pension may be a tenant for life (and be quiet ans respectful and do the gardening)...but as they are on a fixed income they will eventually be outpriced from the area (rents have consistently grown faster than government pensions in our economy and will continue to do so). And then you will end up with a nasty moral dillema....

That's actually my perfect tenant. As a Realtor I let tenants break their lease at any time if they use me to buy a house. Working now with 5th tenant who may do just that. I've made over $15k in commissions doing this and still never had any vacancy as I just line up new tenant upon move out.

I definitely agree with those that say screen your tenants well. Use something like mysmartmove and have a formal process.

clarkfan1979

  • Handlebar Stache
  • *****
  • Posts: 1921
  • Age: 40
  • Location: Pueblo, CO
Re: Higher rent or better tenant?
« Reply #16 on: September 20, 2014, 06:30:02 AM »
All things being equal, a tenant that is getting a rental for below market value is going to be less likely to move. When you charge market value, tenants are more likely to move. My sales pitch is that you are getting a good deal, so don't f it up. If you pay on time and don't wreak the place you will continue to receive below market rent. I also try to boost them up and tell them that I think highly of them and that is why they are receiving below market rent. However, a require bank statements, paycheck and a credit score.

Daleth

  • Handlebar Stache
  • *****
  • Posts: 1201
Re: Higher rent or better tenant?
« Reply #17 on: September 20, 2014, 12:05:49 PM »
IMO you made a rookie mistake.  You have to do all of this, no matter how small the town.  Maybe she is having trouble paying the bills and keeping the doors open.  You do not have enough information to let someone move into your property without a full screening.  Fingers crossed this works out for you.

Yes, you have to screen all tenants, and screen them the same (i.e. you can't pull a credit score for some possible tenants and not for others). This is not only to protect your investment but to protect yourself from possible housing discrimination lawsuits. Mantra: SCREEN EVERYONE THE SAME.

Like the other landlords on this thread, I would say "better tenant over more rent" ALWAYS. You want someone who will pay on time, stay more than a year and keep the place nice. An extra $100/mo is not going to make up for late or unpaid rent, eviction proceedings, long vacancies when the tenant moves out, etc.

Vitai Slade

  • Stubble
  • **
  • Posts: 114
  • Age: 30
Re: Higher rent or better tenant?
« Reply #18 on: September 20, 2014, 02:41:32 PM »
I think good tenant and stability may not go hand in hand. I am a young professional making 6x my rent with perfect rental references and a good credit history,.. a good tenant by any measure. But just what makes me a good tenant also means I won't stay long as buying my own place is on the cards. Meanwhile someone on a pension may be a tenant for life (and be quiet ans respectful and do the gardening)...but as they are on a fixed income they will eventually be outpriced from the area (rents have consistently grown faster than government pensions in our economy and will continue to do so). And then you will end up with a nasty moral dillema....

That's actually my perfect tenant. As a Realtor I let tenants break their lease at any time if they use me to buy a house. Working now with 5th tenant who may do just that. I've made over $15k in commissions doing this and still never had any vacancy as I just line up new tenant upon move out.

I definitely agree with those that say screen your tenants well. Use something like mysmartmove and have a formal process.

This is actually a really smart business move! Not only do you get commission from the sale of a house from your previous tenant, you know the exact date of closing and move out and any delays first-hand to move in new tenants AND are likely to get better tenants who are interested in pursuing this exit clause to their contract.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28132
  • Age: -999
  • Location: Seattle, WA
Re: Higher rent or better tenant?
« Reply #19 on: September 21, 2014, 07:23:42 PM »
I could likely charge 10-15% more if I didn't care who was in the property.

I'd take the better tenants over 10-15% more gross rent every day of the week.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Another Reader

  • Walrus Stache
  • *******
  • Posts: 5110
Re: Higher rent or better tenant?
« Reply #20 on: September 21, 2014, 08:17:57 PM »
This guy is pretty thorough in his screening, but I wonder if he isn't setting himself up for a fair housing lawsuit. 

http://www.biggerpockets.com/renewsblog/2014/09/21/the-ultimate-comprehensive-list-of-tenant-red-flags/#comments

adamcollin

  • Stubble
  • **
  • Posts: 154
  • Age: 28
  • Location: Texas
Re: Higher rent or better tenant?
« Reply #21 on: September 30, 2014, 11:07:08 PM »
Definitely, better tenant. Higher rent won't provide you peace of mind as a quality tenant would.

malacca

  • Stubble
  • **
  • Posts: 229
  • Location: Malaysia!!!
Re: Higher rent or better tenant?
« Reply #22 on: October 02, 2014, 11:42:06 PM »
BETTER TENANTS WILL MAKE YOU MORE MONEY.

In the long run when you consider maintenance, repairs, lost rent and your time, energy & frustration.

Of the 75+ tenants I have had only one bad one so far. That one tenant cost me 25% of the rent they paid in repairs, etc.

KevDolan

  • 5 O'Clock Shadow
  • *
  • Posts: 23
Re: Higher rent or better tenant?
« Reply #23 on: October 05, 2014, 10:24:44 PM »
Definitely go with a better tenant. I would easily take 10%-20% less money for a trustworthy tenant.

Also, do all the research, credit checks, etc.

Kaspian

  • Handlebar Stache
  • *****
  • Posts: 1536
  • Location: Canada
    • My Necronomicon of Badassity
Re: Higher rent or better tenant?
« Reply #24 on: October 07, 2014, 01:09:38 PM »
Having lived in the same apartment building for 15 years, I think I'm qualified to say that bad tenants also mark all the other qualities of a bad person.  They don't pay their rent on time, they have loud arguments with their significant other, they move 3 giant dogs into the property without asking, they punch holes in the drywall, flush apple cores down the toilet, they let the sink/bathtub overflow, invite all their drunk buddies over at 3 AM.  They also move out a lot sooner because they're prone to craziness like spontaneous marriage or prison sentences.  A good tenant will pay their rent on time, save you the lost cost of having to advertise the place every year or so, not have complaints to the police, and not come with a massive repair bill at the end.  I always thought (for the money they save the landlord) good tenants should get a discount instead of an annual inflation price hike. 

senecando

  • Bristles
  • ***
  • Posts: 486
  • Age: 30
  • Location: Madison, Wi
Re: Higher rent or better tenant?
« Reply #25 on: October 07, 2014, 03:19:01 PM »
... I always thought (for the money they save the landlord) good tenants should get a discount instead of an annual inflation price hike.

My landlords don't raise the rent, and I think it's mostly a "thanks for not making us find new tenants" gesture.

They also put it in the advertisement, which might attract people who are more long-term thinking, or are planning to stay in a place for a few years. People planning to stay in a place for a few years will take better care of it.

b1gm1ke11

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Re: Higher rent or better tenant?
« Reply #26 on: October 07, 2014, 10:17:10 PM »
I'll take higher rent and a better tenant!  :)

Ok, ok... a better tenant wins out handily if I had to make a choice.  I've had both excellent tenants and then that one tenant that I had to evict, call the police on, take to court and never get paid, etc. 

A good tenant will leave the house in better condition which will allow you to turn the house around faster and get your next good tenant in.  Of course, you never know 100% if someone will be good or not which is the risk we take in landlording.




Blindsquirrel

  • Pencil Stache
  • ****
  • Posts: 657
  • Age: 2
  • Location: Flyover country
Re: Higher rent or better tenant?
« Reply #27 on: October 30, 2014, 07:36:21 PM »
IMO- better tenant is worth way more than 100 a month. We have some very long term tenants- 2 longest  are now at  about 14 years are paying between 150-200 a month under market value- maybe a tad more. Could not give a rats rear. They bought the GD houses for us, in one case 2x over. They never call and the houses are very nice. In one case embarrassing nicer than when I lived in it. A good tenant is a gem of great price and should always get stellar service. You would be stunned at what some folks have spent to improve rental houses of mine. It blows my mind.

clarkfan1979

  • Handlebar Stache
  • *****
  • Posts: 1921
  • Age: 40
  • Location: Pueblo, CO
Re: Higher rent or better tenant?
« Reply #28 on: November 05, 2014, 03:13:29 PM »
The moral landlord, could be a thread of its own I imagine. Perhaps that would be a good book title.

I listened to a podcast on bigger pockets called "Landlording with integrity". I loved it.