Investor · Redmond, WA · Member since 2021 · 54 posts · 27 votes
I'm debating between 2 types of tenants. It's a good situation to be in. One has 800 scores, great income, check all the boxes. A few others have scores in the 600s (one due to a COVID business failure). All have high income (3-4x rent).
The 800 score people could buy a home now. They are supposedly waiting a couple years to buy until they can get acreage. But I could see them finding a home in 6 months and breaking the lease.
The others I know could not qualify to buy, so I could potentially have them as tenants longer.
Im starting a pro basketball team. LeBron is available but he is so good he might be recruited away by another team. Should I settle for this rookie from a Division C college that will probably stay a long time? Both will sign a one year contract.
So you really have identical tenants here. The one that had their FICO reduced due to a business failure will have that score increased and in a year or so be right back to the top (or near enough)
So I would make the decision based on your gut feel, sometimes, maybe even often, that is the best way to go....Or toss a coin.....
I would always go with high credit score. They have more to lose. Nowadays with rent increases, a tenant breaking the lease and moving on is least of my worries. In fact probably better for landlords if they don't end up staying too long and we can bump it back to market rate.
Let your applicants decide. I had a situation in a few months ago with multiple qualified tenants. I told them all we were in a multi-bid situation and asked if they would offer more rent, a longer lease or both. I ended up with my preferred tenant, $100/month more and a 2 year lease instead of 1 year.
Lots of people could buy a house, but they don't want to. Go with the one with the good credit score. Make sure the lease has a penalty if they break it early. You want the best tenants you can get and if they do break the lease early, you'd probably have no problem finding a new tenant.
@James Mc Ree I have 35 inquiries and 6-7 applications on this property so far. I didn't know I could 'request' a bidding war on rent but it could make sense in this case. I may have offered too low. Any legal ramifications of raising asking rent after advertising it?
We've owned rental properties since 2013. All of our tenants have had good credit scores. The only time we've had tenants break a lease is during hardship. A serious injury or significant loss. It can happen to anyone. They were both single people without children. Parents are concerned about keeping their kids in school for the full year. We've had the best experience renting to families. Not sure if that helps in your situation.
I would always select the most qualified applicant but we typically don't have that situation because we accept the first qualified application. I've found little correlation between what people say their intentions are and what actually happens. I've got someone in a property that wanted a short term lease because they were going to buy a house. I told them 12 months is the shortest we do. That was about 5 years ago and they're still there...
@Tim Lucas Anyone who says they are buying a house is eventually breaking that lease in my experience. It is just a question of when. So if they have an 800 credit score and are new to the area expect they will move in maybe a year. Looking for acreage but they brought it up during the application process, they are looking now. I would base it on other factors but it is interesting you have a dichotomy on credit scores 600 and 800, nothing in the middle.
Im starting a pro basketball team. LeBron is available but he is so good he might be recruited away by another team. Should I settle for this rookie from a Division C college that will probably stay a long time? Both will sign a one year contract.
Skip LeBron, take the C student, he'll be a "Miracle"-worthy, and faithful team player, not a headache. :)
I was recently in the same boat, 800+ credit applicant who inquired and expressed that YES she wanted the place first, and would look to move in about 2 years and relocate out of the area (just sold her home), and a 700 or so Credit score person who would likely rent for 3-5 years from me, maybe more. Honestly, the lower credit applicant could have ended up being the better Long Term tenant I usually seek.
But, ultimately, I'm a man of my word and I had already offered the house to the 800+ credit applicant. She had not yet given a deposit or signed the lease, so I kept marketing of course (because I've been burned that way before too...). I kept the 2nd applicant in the loop and advised him of the timeline I had given her to sign the lease and pay the deposit/etc. I did ensure I gave her enough time to complete the full application process and pay the deposit/1st mo rent since I had already offered the place to her. She did ultimately complete the process, but I definitely wondered if the second applicant would have made for the better long term tenant. I had no other reservations and would have happily rented to either of them. Time will tell I suppose :)
Hope that helps, you are not alone in your dilemma.
@Andrew Croley I would have taken your second tenant because to me 800 is usually buying and most of my lease breaks are buying and 700 is just solid. I have one coming up now where they are buying and leaving probably in Nov/Dec so its not so much they break the lease but if they break it quickly or at a bad time of year. I tell tenants the criteria is not the number but their repayment history and debt in the last year. For the OP, 600 probably has a late payment pattern that might sway me.
Its like what do you do if you are pretty sure LeBron is only playing a couple of games for you.
I have always rented my Bay Area property to people with impeccable credit except ONCE and those tenants were the worst. Ive had people stay as long as 4 years and as little as 6 months. Two tenants broke their lease, one had bad credit and one had perfect credit. The bad credit tenant caused a lot of damage, had cops over for loud noises and I was happy to see them go. But all I got from them to keep was their deposit. The good credit tenant who left after 6 months due to job move negotiated with me and we agreed on a 2 month lease breakage fee which they happily paid. And left the house in immaculate condition. The place was vacant for 15 days and I had a new tenant in. Didn't even have cleaners come in in between.
The point is you cant predict your life let alone your tenants. Things will change but the people with great credit are responsible and easier to deal with. Thats WHY we check credit score in the first place isn't it?