First time landlord choosing between three tenants - Pacific NW

30 Replies

I am renting my house for the first time and held an open house today. I received a very positive response with 7 applicants which is slightly overwhelming to say the least.  I have it narrowed down to three but am in a situation where I am having trouble deciding who would be best.  Any advice would be appreciated.  Here is a quick overview of the three candidates:

#1 - Family of four with two older sons.  They are relocating because of work which according to the rental history seems to move them every couple years but is a secure job.  They make 5 times the rent.  They look to be a safe bet for a couple years.

#2 - Family of seven.  Moving because landlord is selling the house.  They have lived at the same place for 8 years and after talking with their current landlord they always pay on time and have rarely called for any maintenance.  He also said they were very clean and respectful and he would be returning their entire security deposit.  The one issue is they have bad credit.  They meet the income requirement but no long term job history and is construction based.  The fact that they haven't missed a payment in 8 years is great and they look to be a family that would be long term.

#3 - Young family of three - This is my wild card.  Applicants filled out the forms and then let me know they want the house and offered to pay 10% more then the listed rent, put down additional deposits and sign a longer lease then the 1 year we were asking for.  The one problem is they are young, just out of school and job doesn't pay more then three times the rent but he said he receives a large amount of capital gains that would then qualify him.  He also has more then enough money in his bank account to cover the entire lease.  It doesn't sound like he would renew the lease so would only be there for 18 months.  This one is making my head spin.

Thanks for the help!

I pick door number 1.  They are solid.

Don't even consider door number 2.  Bad credit, construction (not stable employment) and a seller who will say anything to get them out.

Door number 3 is a red flag because they are trying to entice you with extra money and a long lease.  Why do they need to do this?  Why don't they go find another rental where they don't have to do this?  They can promise you the moon, and then break the lease early.  Are landlords required to mitigate damages in WA?  If so, they can just break the lease and only have to pay rent to you until you get it rented to someone else, using reasonable means.  Something just smells fishy and desperate here.  

And because you will be renting to another family with children, they can't claim discrimination based on family status.  If you have to defend your decision, base it on #1 having more income.  There's no guarantee #3 will not spend that money in the bank.  In fact, I wouldn't be surprised if they aren't planning on using that as a downpayment on a house and are looking for a short-term rental until they find a home to buy and will then break their lease with you.  Or, a parent lent them that money temporarily so they could find a rental.  At any rate, they're acting sketchy.  

I'd go with #1.

@Daniel Teran Welcome to Bigger Pockets! I am in your same town! I could be of help to you. I do mentoring with the Clark County Rental Association and I am also very active with Bigger Pockets. Check out my profile for more info on me.

There are many factors to consider during tenant selection. It starts with establishing your Rental Criteria and then doing a Tenant Screening Interview, Property Showing, Application Review and Background Checks.

To answer your question based only on the information you provided. I would only consider #1 and #2.  However without looking at the complete package, I really couldn't say to whom I would rent. One of the factors being the size of the property, number of bedrooms and baths. Don't be scared off by bad credit, many renters have bad credit. More importantly is the reason behind the bad credit.

Take your time and don't rush. There is usually more to the story than what appears on the surface. Feel free to private message me and we can chat. Also, complete your BP profile and upload a photo, as it will help you with your networking. :-)

@Marcia Maynard - great advice and very true regarding credit.

I guess I'd add that #2 will also result in more "normal wear and tear" than #1, based on the number of occupants.  And, since the credit is bad, it's an easy way out of having to accept a tenant with 7 people, instead of 4, as well.

With regard to wear and tear - less is more.  And I think if they were to actually stay 8 years at this rental, you'd likely be looking at a complete renovation at that point.  You'd likely be beyond the expected life of any carpets and maybe other flooring, etc., and couldn't charge them for any damage.

Whereas, if you can legally accept #1, and he can, then when that tenant moves out, he'd hopefully have the option to avoid another huge family next time around, too.

Politically incorrect as that is :-)

I'd be worried about professional tenants with #3, promising the moon just long enough to establish tenancy then squatting until you evict.

Originally posted by @Sue K. - great advice and very true regarding credit.

I guess I'd add that #2 will also result in more "normal wear and tear" than #1, based on the number of occupants.  And, since the credit is bad, it's an easy way out of having to accept a tenant with 7 people, instead of 4, as well.

With regard to wear and tear - less is more.  And I think if they were to actually stay 8 years at this rental, you'd likely be looking at a complete renovation at that point.  You'd likely be beyond the expected life of any carpets and maybe other flooring, etc., and couldn't charge them for any damage.

Whereas, if you can legally accept #1, and he can, then when that tenant moves out, he'd hopefully have the option to avoid another huge family next time around, too.

Politically incorrect as that is :-)

I understand your view. The reason I would consider both #1 and #2 with the information provided is because they both might meet our minimum criteria to rent, if the house had at least four bedrooms. Without interviewing both parties and seeing the entire application package, I wouldn't say no at this point. Ultimately I would go with the applicant that best meets our rental criteria and is the best fit for the property and our management style.

Extra wear and tear is certainly a factor and I too prefer fewer people per unit, but I wouldn't want to get caught up on that if the house was the size that could easily handle the larger family and had been priced for such. I would also be looking at the likelihood of the tenant being short-term vs. long-term. Short-term tenants cost us more money at the turn. Our tenants tend to stay a long time and if the flooring wears to the end its useful life or beyond, we are still in a good position because we have already factored that into our budget. We do MTM contracts and have favorable landlord tenant laws, so ousting a non-performing tenant is fairly easy in our jurisdiction.

@Marcia Maynard Funny you posted this, as I was just puttering around the house and thinking about this post and wondering if the tenants were to turn over every 2 years, if that would end up being a better situation or not, than keeping a family of 7 people for 8 years.

If the rent was, say $1500, and you lost a month's rent every 2 years over 8 years, that would be  3 turnovers at $1500 = $4500 (on rent alone), in addition to the final turnover that you'd have with either one (on rent alone).  So you'd have to weigh that against the potential rehab that might be needed in 8 years with the family of 7, as opposed to 8 years of tenants that may or may not, do minimal damage.

It really is a guessing game at that point, and I completely see your point of view in that it's far less management with regard to turnovers, with a tenant who doesn't move out for many years.

You're a very smart cookie.  I can learn a lot from you :-)

Originally posted by @Sue K. :

@Marcia Maynard You're a very smart cookie.  I can learn a lot from you :-)

And I from you as well. Glad you are here on BP. :-)

Great news that you have three tenants to choose from.  What a great problem to have, right!

When I look at a tenants application I want to see three things:

1. Stable income

2. Stable residence history

3. Positive reason to move

Looks like #1 and #2 have all three.    Number #1 is better as the reasons for moving are verifiable and their income is stable and also verifiable.

One note to several folks who have posted to this thread.  Family status is a protected class according to federal fair housing law. You cannot legally choose a tenant based on the number of people in a family or the wear and tear they might create as a result.  Fair Housing law is confusing and seemingly innocent violations like the ones discussed here can be devastating.  If you are in real estate,  do yourself a big favor and get some fair housing education.  Call your local Board of Realtors for a start. 

You have to divorce yourself from the situation. Its not you choosing, its the business. Establish your screening criteria; income, criminal history, credit, etc. and stick to that. Do not let your emotions push you into accepting a tenant that you otherwise would not. Yes, you run the chance of not accepting someone with bad credit that would have been a good tenant but it will save you from accepting a lot more bad tenants.

People lie, numbers don't.

Personal involvement in these decisions is how people get sued for retaliation or discrimination. You have to have something legal to point to in the event of a lawsuit. I go a step further and run them in the order they were received whenever possible. The only way I get to the second application is if the first doesn't qualify.

Originally posted by @Laird Wynn :

One note to several folks who have posted to this thread.  Family status is a protected class according to federal fair housing law. You cannot legally choose a tenant based on the number of people in a family or the wear and tear they might create as a result.  Fair Housing law is confusing and seemingly innocent violations like the ones discussed here can be devastating.  If you are in real estate,  do yourself a big favor and get some fair housing education.  Call your local Board of Realtors for a start. 

 You're absolutely right and I apologize if I wasn't clear, and you were including me in your statement.  My point was that you can legally turn down the family of 7 based on bad credit.  And because you would be renting to another family, you can't be seen as someone who won't rent to families.

If fair housing comes knocking, all you have to do is show that you denied them based on credit.  People with bad credit are not a protected class.

You are not required to rent to a family, just because they are a family, no matter how many members there are.  They still have to meet your other (legal) criteria.

And there's nothing wrong with being secretly relieved when you get to legally turn down a family of 7, in favor of a family of 4 :-)

I would also consider if you pick up any utilities specifically water. Many more showers, more dishes, more laundry with a larger family.

I would be wary of the landlord reference for #2. You want to see real proof of those rent payments, either cancelled checks or bank statements - otherwise, anybody (you sure it really was the landlord you spoke with?) can make a bunch of false statements intended to persuade you into accepting them. I assume the house has at least 3 bedrooms; otherwise, the number of occupants exceeds my criteria for sleeping quarters (number of bedrooms time two plus one = max number of occupants I allow). 

And #1, with income 5x rent - I'd like to order me a few of those for when my next vacancy comes up. 

Red flags with tenant 2: the landlord reference and the dependency on seasonal income

Red flags with tenant 3: everything you mentioned is pretty much a red flag.

To me the only solid applicants in the lot is #1. What kind of job are they relocating for?

Michael Noto, Real Estate Agent in CT (#RES.0799665)
860-384-7570

Thanks everyone.  Turns out I am liking to go with an option #4.  Their application came in later and is by far the best.  Now I have another question, do I have to do the same background check on everyone that applied. Received 8 applications but can tell some don't qualify without processing.  Can I just return their application fee?

Now you're making me nervous.  I think you need a fair housing criteria that you stick to, and process applications in order received - first one who qualifies is accepted.

Since #1 qualified, passing them up for #4 could cause problems.  You could turn down #2 and #3 for legitimate reasons.  So you were okay there.

But, you need to have a very good, legitimate reason for taking #4 over #1, and for turning down anyone in-between now.  Whereas, if you took #1, you don't need a reason for anyone after that, because you took someone who applied before they did.  

Once you have accepted someone, any applications received after that person can just be refunded their application fees.  There would be no reason to run reports then.

#1 if they know the job will not relocate them in a couple of years. 

A little more information, the credit report on #1 came back very low and showed they have been sent to collection several dozen times.  That is why they were passed up.  I offered it to #2 which didn't have bad credit as they had originally told me at our first meeting but instead had no credit, as in they have never had a credit card.  All references were good and I offered to then and they declined. #3 had issues without the background check.  But do I still have to run it before moving to #4 or can I just send the money back?

Originally posted by @Daniel Teran :

Thanks everyone.  Turns out I am liking to go with an option #4.  Their application came in later and is by far the best.  Now I have another question, do I have to do the same background check on everyone that applied. Received 8 applications but can tell some don't qualify without processing.  Can I just return their application fee?

No, you don't need to the full background check on all who applied if you found something during the application process that disqualifies them. You don't need to go any further.

Yes, you can return their application fee. It is not uncommon to find out early on that someone won't qualify. If I can see they don't meet our minimum criteria to rent before paying for credit and legal checks, and before spending too much of my time verifying what is on the application, then I will return their application fee.  

Also, you don't need to take first qualified applicant, you can select the most qualified applicant out of the batch of applications you received. However, for all of those who applied and did not receive an offer to rent, you must send them an Adverse Action Notice, required by Washington State landlord-tenant law. On the Adverse Action Notice you will check the general reason you denied them from the categories listed.

Originally posted by @Sue K. :

Now you're making me nervous.  I think you need a fair housing criteria that you stick to, and process applications in order received - first one who qualifies is accepted.

Since #1 qualified, passing them up for #4 could cause problems.  You could turn down #2 and #3 for legitimate reasons.  So you were okay there.

But, you need to have a very good, legitimate reason for taking #4 over #1, and for turning down anyone in-between now.  Whereas, if you took #1, you don't need a reason for anyone after that, because you took someone who applied before they did.  

Once you have accepted someone, any applications received after that person can just be refunded their application fees.  There would be no reason to run reports then.

Actually, you are not required to accept the first person who applied if a later applicant is a stronger candidate and better meets your rental criteria. Especially if the background checks and verification process reveals something that disqualifies the earlier candidate. The key is to have written rental criteria that complies with non-discrimination laws and fair housing laws, to measure all applicants against the same criteria, and to follow the requirements of landlord-tenant law for your jurisdiction.

Originally posted by @Marcia Maynard :
Originally posted by @Sue Kelly:

Now you're making me nervous.  I think you need a fair housing criteria that you stick to, and process applications in order received - first one who qualifies is accepted.

Since #1 qualified, passing them up for #4 could cause problems.  You could turn down #2 and #3 for legitimate reasons.  So you were okay there.

But, you need to have a very good, legitimate reason for taking #4 over #1, and for turning down anyone in-between now.  Whereas, if you took #1, you don't need a reason for anyone after that, because you took someone who applied before they did.  

Once you have accepted someone, any applications received after that person can just be refunded their application fees.  There would be no reason to run reports then.

Actually, you are not required to accept the first person who applied if a later applicant is a stronger candidate and better meets your rental criteria. Especially if the background checks and verification process reveals something that disqualifies the earlier candidate. The key is to have written rental criteria that complies with non-discrimination laws and fair housing laws, to measure all applicants against the same criteria, and to follow the requirements of landlord-tenant law for your jurisdiction.

 But you better have a darn good reason for turning down the first person who qualifies.  #1 was very strong.  I'm curious as to why someone else would be a better tenant?  They had a strong job, good references, plenty of money?????

Would love to hear your reasoning why turning them down would be justified?

There credit score came back very low and showed they'd been sent to collections repeatedly.  I used a rental application from the BiggerPockets site that specifically listed criteria that included a good credit.

Originally posted by @Laird Wynn :

One note to several folks who have posted to this thread.  Family status is a protected class according to federal fair housing law. You cannot legally choose a tenant based on the number of people in a family or the wear and tear they might create as a result.  Fair Housing law is confusing and seemingly innocent violations like the ones discussed here can be devastating.  If you are in real estate,  do yourself a big favor and get some fair housing education.  Call your local Board of Realtors for a start. 

I understand your point. You are right that family status is a protected class and one cannot legally choose a tenant based on the number of people in the family or the wear and tear they might create. One needs to be well versed in fair housing law. And I might add, non-discrimination law as well. Both at the federal, state, and local level.

I don't know if you were referencing me or any of my comments, but if you were, perhaps I misspoke, wasn't clear, or was just misunderstood. 

One can legally choose not to rent to a larger group of people if the number of people exceeds occupancy standards. That is why I mentioned the importance of knowing the number of bedrooms, baths, size of property, and suitability for a large household. I would have no problem renting to a large family... heck, I come from a family of nine! 

Wear and tear comes with the territory and some occupants cause more of it than others, regardless of the number of people in the household. I did say that I prefer renting to fewer people (than the maximum allowed by law), honestly I do and I think most landlords do, but I could not consider that when making a decision on whether to rent or not. I would not want to get caught up in that, for precisely the reason you mention. If the family or number of people in the household falls within the maximum allowed for the dwelling, they would be considered equally and fairly along with other applicants.

Bottom line, the landlord must use a clear and consistent screening process for all applicants. Some states, such as ours, require landlords to provide all applicants with written rental criteria prior to accepting their application fee. And one's rental criteria had better comply with non-discrimination and fair housing law. Ours does.

Originally posted by @Marcia Maynard :
Originally posted by @Sue Kelly:

Now you're making me nervous.  I think you need a fair housing criteria that you stick to, and process applications in order received - first one who qualifies is accepted.

........

Actually, you are not required to accept the first person who applied if a later applicant is a stronger candidate and better meets your rental criteria. Especially if the background checks and verification process reveals something that disqualifies the earlier candidate. The key is to have written rental criteria that complies with non-discrimination laws and fair housing laws, to measure all applicants against the same criteria, and to follow the requirements of landlord-tenant law for your jurisdiction.

My wife (a licensed realtor) always tell me we are not allowed to process multiple applications simultaneously. You process in order of receipt and accept or reject an application before processing the next one. 

If you do that then I don't understand how you get into the scenario you describe, so I'm with @Sue Kelly on this one.