Inherited tenants don't meet minimum income requirements

[Matt Kauffman]

Good Evening, 

I just closed on a duplex in the same neighborhood as my others. They all rent for $650/door or better. Tenants pay everything except sewer. 

I met with one of the new tenants tonight to go over things with them. They currently pay $550/mo and had their water bill included in rent. The unit is completely rehabbed, although I might like to redo the bathtub surround, but regardless. If I'd put it on the open market I'd get $650 easy or more if i redid the bath surround. So what's the problem?

As I shared with them that area rents are $650 they immediately said they couldn't afford that. I told them that didn't need to go to that level right away, but that'd we eventually need to make it there. 

I have no history with these people, but they seem solid, keep the place really clean, and are probably not a problem. They told me they only make about $1500/mo in net income. I told them that they wouldn't even have qualified to rent at the rate they are at now. 

So what do i do? I don't really want a vacancy. I can make money at $575/mo with them paying the water bill, but even then that would put them even further below the minimum income requirement that I set for other tenants and rent will increase next summer as I'm having them sign an 8 month lease so that it ends in the summer. 

Wondering if I should terminate their month to month and stand firm on my offer of $625/mo and them paying the water bill or if I should exercise some compassion and take a little less to avoid a vacancy. Either way i see a vacancy coming down the road or they get in financial trouble and then they have no reserve to pay and then we're in trouble. I'm feeling like I should be leaning towards sticking to the higher rent and dealing with a vacancy, since the difference of $50/mo in rent is equal to the cost needed to turn the unit. 

Any advice is appreciated.