Can lower rent actually get you better qualified tenants?

12 Replies

My wife has this theory that lower rent actually gets you better qualified tenants, on the premise that since they're more desirable but often just as frugal as anyone else they can stand out from the field and get the unit.  I worry that I'd get so many applicants that I'd never find these better qualified ones in the stack of marginal ones. 

This last vacancy was pretty brutal. Lots either on unemployment due to Covid or with bad credit, or both. I had a family of 4 adults applying for a 700 ft unit with 2 7x10 bedrooms! Normally need 3x gross and 650, but finally rented to a guy with a solid State Govt job of 6 years that paid 4x rent, but had an abysmal 530 FICO. He was putting his finances back in order and we took a chance on our sniff test. Done it couple times before and it worked out, but I'm not happy about it. I have another vacancy coming on the 15th and I'm dreading it...

This philosophy is wrong.  If a home rents for $1,000 but I decide I will lower it to around $850-$895 in hopes of a better tenant, I dont see that as being the case. Statistically tenants that can afford the $1,000 in rent and qualify are better then lower paying tenants.  It does not mean lower paying tenants are not good, they just dont qualify for the higher rent home.

Lower rent will (in theory) get you more tenants that meet basic income threshold requirements, so if that's your only criteria for qualification then your wife would be right. However, if you have other criteria, such as credit score, employment history, etc, then the percentage of qualified applicants to applicants will likely be lower with lower rent. 

It depends on your market. If you have a healthy market then your rent should be fine at/a hair below/a hair above market. If you have a sick market, then you sometimes have to dredge through the muck to find someone that will work. Your theory that higher income will self-exclude more marginal applicants is correct.

Personally, I don't want "frugal but good" tenants. I want tenants that recognize a fair deal and a quality house and are willing to pay what it costs to procure said house. In business the biggest PITA people you will ever deal with are "frugal" people and "rich" people. Frugal ones think everything should come as cheap as possible for them, regardless of their ability to pay, and rich people think every dollar they give you is worth two. They're 2 sides of the same coin. The buyer I want is the one that wants to be treated fairly and wants to treat their vendor fairly. 

I used to follow this theory when I started out where I would be about 150 below not with the goal of renting out quick with a good selection of tenants and it worked and I always got my pick of many applicants.  I also realized my theory they will stick around longer didn’t pan out like I hoped and I lost out on money.  I feel there is a fine line and also see a lot of houses sit on the mkt for 2-3 months since they started too high and missed on a lot of rent so there is a balance both ways.  I try to be about 50 under mkt to attract more renters quicker with better selection and feel that is a good middle ground.      Sure I miss out on some rent but I got a better field to pick from and saved time.  

Thanks all.  FWIW in an apartment not house market with wide diversity in size and amenities even if it's all 2br 1b, it's often pretty hard to figure out exactly where market is other than trial and error. In normal times, if I get more than a dozen hits the 1st day of listing I think I'm at market or below. But this time, I've had 50 hits since 9/15 on Zillow alone, but most the hits were very low quality. I had several applications that later found better places till I rented it yesterday.

Of course it's possible my ad was "too good" and the reality didn't hold up!  I got a new Moto G8 phone with a superwide lens and the pics of the well decorated occupied looked fabulous. 

I'd sooner just make that place sparkle. Take that money and put it into things that pop i.e. front door, landscape, fresh paint, appliances. I would always get the bottom of the barrel when I rush to rent and don't take the time to freshen up. 

I had given credit before when I knew I had good people. The offer was if they take it for the first of the month I would let it be their call to replace the floor or upgrade the bathroom. I was able to do an upgrade while they were there and it was was a seamless turnover. We were both pretty happy with that option. 

On a recent podcast, @Joe Asamoah mentioned that he is incredibly exclusive about who he'll rent to, even though he primarily rents to Section 8 tenants. That might sound like a contradiction, but it comes down to his vetting process. He actually tells them he wants to come visit the home they're currently living in before accepting them. He wants to know how they actually treat their landlord's home rather than just relying on their word. His houses are nice enough that people understand they have to accept his terms if they're going to get their application accepted by him. I hadn't considered doing this, but it makes a ton of sense unless you're in a situation where you're desperate for tenants. Sounds like you've got plenty of potential tenants so you can afford to be choosy. Good people sometimes have bad credit for a variety of reasons. People with good credit sometimes take your home for granted. There's just no one answer that fits, which is why I really like Joe's suggestion.

Originally posted by @Waleep Alvi :

@Johann Jells Always charge the most amount of money for your unit. This is a business. A lot of income properties are going to be based on the cash flow of the property.

Sure, but I believe it's foolish to lose a $1700 month's rent to get an extra $50 or $100 a month. However I see your philosophy at work in some of the large towers here where they'll give 2 or 3 free months rather than lower the rent, to keep their rent numbers high for the banks. Not to mention all the extra time I spend contacting leads and showing the unit if it doesn't rent fast.  My typical tenant only stays 2-4 years, so an extra month or 2 of vacancy per tenancy starts to add up.