I was talking to a prospective Charlotte property management client the other day and he had only one criteria he really cared about. He wanted to make sure that we placed a rental tenant into his home that had 700+ credit scores. That was it.
I told him I didn't think that was a good idea; it would reject a lot of better suited applicants. He told me I was crazy (in so many words).
Well, let's do the whole Benjamin Franklin pro's and con's thing. Then we can make an educated decision.
First, the overall goal must be established. As a Charlotte property manager, we want to make sure that we maximize our client's investments. Generally speaking, we define this as providing the most net cash flow to our owner clients. Most clients agree that we should be measured by how much money we put into their pockets.
Now for the pros of a 700+ credit score client. They will almost always:
- Pay their rent in full and on-time
- Leave the home in great shape when they move out
These are the two biggest concerns of our clients, so these are very good attributes.
Let's now look at the cons. I could nitpick, but tenants with 700+ credit scores are pretty good to have. So, I just want to focus on one con:
- They typically vacate after their initial lease expires
This one con crushes a client's overall cash flow and ROI.
Most people who have 700+ credit scores buy homes immediately. The ones that don't usually have a reason like they:
- Are a mobile professional who will move with their company in 1-2 years
- Are waiting for the right deal on the house they want (Guess what? The deals are here now!)
- Just moved to town and will buy once they get to know the area
So a full year's rent is secure, but then there will usually be a few months of vacancy and holding costs that have to be factored in after the 700+ tenant vacates.
The ROI might be better with a tenant with sub-620 scores (who can't buy) and a solid landlord history? I'm thinking there is certainly a case to be made.
Tenants who stay for years are almost always a better investment than those that are one year and done. In conclusion, it may be time to rethink the "700+ credit tenant or no deal" strategy.
Brett Furniss is the President & Owner of BDF Realty ("Charlotte's Most Innovative Property Management & Investment Company"), and Rent-To-Sell Realty ("When You Need a New Solution to Sell Your Home") which specialize in rent-to-own (lease options) and rent-to-sell homes. You can contact him directly at Brett@BDFRealty.com.
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