Better to have no tenant or a tenant with history of multiple late payments

[Sandra Ho]

This is our second rental in Indianapolis that we closed on a couple of months ago, but it has been difficult finding tenants. The first rental we closed on in April rented quickly with no issues with a great tenant. Wanted to ask everyone what their experience is with tenants that have had multiple late payments on their report and one of them also declared bankruptcy in the past. Is it better to wait for a tenant that is more on time with payments and leave the place vacant for now or accept whoever applies? New to all of this so any advice is appreciated!

[Greg Scott]

The housing market in Indy is pretty tight.  All of our apartments are at 95% occupancy. If you are having trouble finding a resident, there is another issue. Typically it is asking too much for rent, but it could be your advertising is poor or your property is not in good condition for that area.

"Accept whoever applies" is an idea that would cost you a bucket of money in the long run.

Bankruptcy is usually a "no" unless it appears to be a one-time event caused by something out of their control such as a massive medical bill or a business failure.  Bankruptcy due to poor money management is indicative of a behavioral issue that does not change over time. Do you want to be their landlord if they enter bankruptcy again?

Late payments do not bother me at all as long as they paid all their bills.

[Gino Barbaro]

@Sandra Ho

I think people who have tendencies or habits tend to repeat them. If they're late multiple times and or declared bankruptcy, then I would expect them to continue, unless they can provide some clear explanation.

If you're having problems renting, it is either a pricing, condition or marketing issue

Good luck

Gino

[Kerry Noble Jr]

Like Greg said, you might be a little too high. I had one of my OOS partners have me go take a look at their property and give them feedback to their property. I would love to take a look if you would like

[Sylvia Santelli]

That can be risky--- I have heard of landlords doing a "trial 3month lease" or "trial 6month lease" instead of a year, but then there stuff is in there--- not sure what they do then.

[JD Martin]

I always prefer a vacancy to a bum. Bums are way more expensive than empty houses or apartments. 

[Gregory Schwartz]

Not sure if this is the case in your market but once we get into the fall time frame in my market the demand drops off significantly. So yes you might need to drop your price. 

Please please please dont lower your screening requirements. 

[Kevin Sobilo]

@Sandra Ho, It sounds like you are talking about late payments on their credit report for things like credit cards, car payments, student loans, etc.

If that is what you are talking about, you are probably getting WAY off in left field. If their credit history is sufficiently long to generate a reasonable score for them then the credit score tells you the answer! 

Also, many people pay some bills late but not their rent because a late credit card payment doesn't cause them to potentially lose where they live. Even if they pay late sometimes, you have a late fee to compensate you.

In the end a credit score based on a sufficient credit history tells you the risk of default which is what you should actually be concerned about. People are imperfect and things like late payers is something you deal with in your approach to managing properties more-so than in the vetting process because if tenants were perfect most would be owners not renters.

[Nathan Gesner]

Lower your price, not your standards.

Your house is either priced too high, or it's in an area that's undesirable to good renters. I recommend you really study your market to determine the appropriate rent rate, then market yours 5-10% below the competition for a six-month lease. Get it rented through the winter, then you can rent it at market rate in the spring/summer.

[Sandra Ho]

Thank you everyone for your comments! They were all very helpful. I lowered the price of both even more and was able to find a tenant for one of them, will see what happens with the other!

[Lindsay Davis]

@Sandra Ho,

I'm a little late to your thread, but you pose a good question—neither of these situations are ideal. I would contend, however, that it’s better to have no tenant than deal with one who’s a credit risk. The logic here is that it’s far more difficult (and costlier) to evict a nonperforming tenant than it is to screen for a good one.

Like @Greg Scottsaid, see if lowering your asking rent increases the number of applications you receive. Remember that you’re incurring a vacancy loss every day you don’t have a tenant in place, so you should consider the trade-off here.

[Nathan Gesner]

Quote from @Sandra Ho:

Thank you everyone for your comments! They were all very helpful. I lowered the price of both even more and was able to find a tenant for one of them, will see what happens with the other!

Thank you for returning with an update! We often give advice and never learn the end result.