You Don't Want the Tenant Who's Willing to Overpay

Earlier this year, we were hired to take over a small multifamily property that was 100% occupied at rents about 40% over market. On paper, it looked like a home run. In reality, the owner's pursuit of higher rent had cost him $28,000.

He didn't hire us because things were going well. He hired us because the tenants weren't paying.

Full Occupancy Isn't the Same as Full Payment

We've written before about why it never pays to overprice your rental. That post is mostly about the unit that sits: you list $100 over market, it stays vacant for two months, and the "extra" rent never makes up for the lost time.

This is the other half of that story, and in some ways it's worse. It's about the overpriced unit that does rent.

Most owners assume that if a unit leases at an above-market price, they won. The market must have been stronger than anyone thought. Every unit is full, and the rent roll looks fantastic.

What that rent roll doesn't show is who actually signed those leases, and why.

"Why Don't They Care How Much the Rent Is?"

I've said it more times than I can count: you do NOT want the tenants who are willing to overpay.

Think about it from the renter's side. A good applicant with steady income and a solid rental history shops around. They look at a dozen places. They know what comparable units rent for, and they have options. When they see a unit priced 40% over what everything else nearby is asking, they don't negotiate. They just move on to the next listing.

So who signs a lease at 40% over market without blinking?

Why don't they care how much the rent is? Because they have no intention of paying it.

That's not true of every tenant who pays a premium. But it's true often enough that an overpriced unit filling up fast should worry an owner, not excite them.

Where the $28,000 Went

In this case, the answer showed up exactly where you'd expect: unpaid rent, cleanup, repairs, and attorney fees. All in, $28,000.

Before we took it on, we confirmed the property could support market rents, meaning real, sustainable rents that qualified renters would sign for. Then we got to work, using the same approach we describe below.

It's running well now. But the owner paid a steep price to learn that a higher number on the lease doesn't mean anything if it never turns into a deposit in the bank.

The Affordability Math Nobody Runs

Here's a simple way to see why this happens. The numbers below are an illustration, not this property.

Say market rent for a unit is $1,000 a month, and a common screening standard is income of three times the rent. A qualified applicant needs about $3,000 a month in income.

Now price that same unit 40% over market, at $1,400. The same standard requires $4,200 a month in income. But an applicant who genuinely earns $4,200 and has good credit can rent something noticeably nicer for $1,400. They aren't choosing your $1,000 unit at a $1,400 price.

That leaves applicants who don't really qualify at $1,400 but are happy to sign anyway. Qualifying someone for a rent they can't afford doesn't do anyone a favor. It ends in lost revenue, lawyers, court, eviction, collections, and damaged credit, and nobody wins.

What We Do Instead

Price to the market, not to your hopes. Look at what's actively listed and competing with your unit right now. If you were the renter, which homes would be on your list? Comparable rents set the ceiling for your price, not the floor. A property is only worth what someone is willing and able to pay.

Screen to a real standard, every time. Verified income, real landlord references, and eviction history. An applicant who's happy to pay far above market but can't document the income to support it isn't a win. They're a warning sign.

Fix it at turnover, not with a hammer. If you already have a reliable tenant paying a little over market, great, leave it alone. The problem is the pattern, not one lease. When units turn over, reset to market and lease to someone who can actually afford it.

Check the rents before you buy. If you're buying a rental, underwrite it at realistic market rents, not at whatever the current rent roll says. An over-market rent roll can make a property look far more profitable than it is.

Why This Matters

A lower rent paid on the 1st every month beats a higher rent that shows up late, partially, or not at all. The first builds a stable, boring, profitable property. The second builds a $28,000 lesson.

Is your rent roll telling you the whole story?

If your units filled suspiciously fast at a suspiciously high price, it's worth an honest second look before the non-payment starts. Let's talk. Blair Allen Property Management serves owners across South Dakota and Montana.

Chris Twiggs
President, Blair Allen Property Management
📞 605-545-1218
✉️ chris@blairallen.com