But My Neighbor is getting $300 above market rent!
As a Tampa property manager, I submit a rental quote that includes a list of comparable properties in the neighborhood that have recently rented or currently listed for rent. This market analysis is how I justify my lower rental quote. I also offer to try and rent the home for a higher price with the understanding that it takes about seven days to figure out if we are over the market. The surest sign the rent is too high is no one will call.
The issue is you can rent a home for $200-$300 above market rent to an unqualified applicant. The person will have bad credit, poor rental history, or doesn't make enough money to afford the rent (at least on paper), but they're eager to sign. These prospective tenants are your classic champagne lifestyle living on a beer budget type of people. They will put themselves deep in the hole to live in a much nicer home in a great neighborhood. Sometimes, this will work out fine for the property owner.
Sometimes, this tenant will end up in eviction, trashing the home, or breaking their lease. One of the challenges of living above your means is you often don't appreciate the sacrifice it takes to afford something very nice, and therefore you don't take care of it. Or the first hint of financial trouble, the tenant is underwater and not paying the rent on time or at all.
Another variation of the neighbor getting way more rent is simply an exaggeration. People like to tell "big fish" stories because it makes them feel important. Unless you've looked at the lease or spoken to the tenant, how do you really know what they are paying for in rent? People exaggerate.
The worst scenario is above-market rent attracts nightmare tenants who have no intention of paying you after the first month. There goal is to delay and delay and try and get 3 or 4 months behind on rent before you finally evict them.I consider this group about 3% of the population and they will lie at pathological levels. They are the number one reason why a landlord sells their rental property and quits investing in real estate.
The key to discovering a bad tenant is proper screening. You must check their credit and criminal background through a national reporting agency. You must call their last two landlords and verify the phone number matches what you find at www.whitepages.com or it is likely a friend of a tenant. Plus you want to pull up the property appraiser site and ensure the landlord listed is the one that listed as the owner on the property appraiser. There are a host of other techniques but this is not the article for that topic.
For example, I had a tenant that I inherited when I took over the property after the owner had rented to them. The tenant had a master's degree in nursing but had shafted every single creditor on her credit report. Her explanation was that she was in school and struggled to pay her bills and meet tuition. The owner who rented to her didn't check with previous landlords. She fell for the classic story of a nightmare tenant: "I've struggled with X and just need a chance."It turns out this was not the first time she had been evicted. When we got her out, the tenant had done over $10K in damages, but she did indeed work as a nurse and was making an excellent salary.
Any of the above scenarios I've mentioned is not sustainable. You can't rent a home for way above market rent long term and expect good results. You're going to encounter the nightmare tenants that trash your home and don't pay rent and end up giving back all that extra money you collected in damages and lost rent. As a homeowner, you can do the research yourself. Look to see what things have rented for on Zillow or other websites. Don't take the word of a property manager, because many of them won't provide you with the market analysis showing the comparable properties.
Be careful what your neighbor is claiming for property rent. It is very easy to find tenants to pay above market rent, but the quality of that tenant is often exceedingly poor as I've described above.