Choosing between tenants

[Andrew M.]

Hello all,

I'm brand new here and as a landlord so I'm posting this in hopes I can get some opinions into what I should do.  A few months ago I bought a new house and held onto my old one so I could rent it out. I've got it all fixed up and went through the whole process to get it ready etc. I'm now at the point where I have two applicants that can move in for July and I'm having a tough time choosing between two of them.

Application 1 (3 related + 1 friend) - application was submitted first

Pros
Plenty of income to pay - 5x+
2 with great credit (>700)
work with a friend who gave a good reference
1 attended the same religious institution i did so I'm less inclined to think they would mess up the unit which could be naive
1 year of rental history with no issues paying a fairly higher rent
high job security (family business)

Cons
higher chance of short term rental - I'm basing this on their young age and the fact they could easily decide to move out on their own
2 with bad credit (<600)
Young - early twenties
basement will need to be used as an additional bedroom
potential parking issues (4 cars)
"kiddish" rooms would need to be repainted

Application 2 (1 adult + 4 kids)

Pros
higher chance of long term rental (>3 years) - I say this because the last two locations this person stayed for 3 and 4 years only to leave when the houses were sold
fit to the house - in that the rooms are decorated "kiddish" now and don't need to be modified at all ie. repainted, etc)
paid same rent for over 7 years w/no issues

Cons
43% of income to rent
Bad credit (<600)  - I'm told this is the result of issues with the absentee parent

I should also say i have a relative who is a lawyer involved in real estate so he's prepared my lease and helped me out with what can be done legally etc. as well. The property is a townhouse with 3 beds and 1.5 baths. I've run background checks - this included calls for job and landlord references.

Neither of them expressly meets my original criteria concerning credit scores but all the references check out.

My main concern with applicant 2 would be the low salary compared to rent but they've been paying that for 7 years with no issues so I'm not sure that is a valid concern.

My head is saying financially and numbers wise I should go with applicant 1 with a much higher ability to pay and two individuals with better scores.  Applicant 1 also provided me with full credit reports and I can see the reason two have lower scores is because of school loan payments.  Also, legally my reason for rejecting applicant 2 would be % of salary.  For applicant 1 there are only issues related to the association parking rules that may come into play.

However, I believe emotionally I'm leaning toward applicant 2.  Another factor is that they are trying to stay in the same school district though I know that's not my responsibility, I know it can be hard to find a decent priced place in this area.

I understand that neither of these might be considered a great candidate as I've read a lot about what minimum requirements should be but I believe that both of these would be good after running all the background checks.  I don't want to run into the pitfalls of being too 'nice' of a landlord so I do want to look at this logically.  Any thoughts?

Thanks!

[Stephen E.]

@Andrew M.  Both applicants have significant negatives. One is a group, and groups can and do split up with some regularity. Never renting to friends and family is good business practice, one of the group gets close to this in attending the same religious institution that you did. Could you enforce lease terms in the same way you would with any other tenant because of this relationship? How comfortable are you with this? Also, they plan to use the basement as an additional bedroom and you are aware of this planned usage. There could be substantial liability here in case of fire. A basement bedroom is to have an egress window for a second exit. Does yours have this? If not this could be real trouble.

Applicant 2 has rent at 43% of income, which is a red flag, as is below par credit rating score. On the upside they have a consistent rental payment history and you believe that they will be long term tenants. If they came you would have to be reluctant to keep up with regular rent increases to cover your expenses. Every increase would stand to jack up that rent to income ratio still further - 43% and rising.

So neither applicants are star tenants in my view. How long have you been trying to rent the place? How long could you keep it vacant if you had to? How near are you to it actually being vacant? I think all of this has a bearing on how ready you might be to accept one of these two, but to be honest in an ideal world you would accept neither. Believe it or not there are applicants with good credit scores, good income and good character. If you look for them you will find them. if you settle for tenants with obvious problems then their problems may become yours.