A tough choice on tenant approval

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Recently, I had to make a really tough call regarding a new tenant.

A little background:

  • We’re finishing up a very large re-positioning deal;
  • We’re very close to closing the refinancing, which should return ~90% of the capital invested in the project, leaving us with a >20% / yr cash-on-cash on the capital that remains in the project;
  • One of the remaining gating items is leasing the last unit, which has been tough; and
  • Applicants came for the last unit with imperfect credit / employment situations

Regular readers know I approve every applicant in our portfolio. By “approve”, I mean, determine whether that applicant will be accepted and, if so, with what security deposit and / or co-signer.

Obviously, the choice was:

  1. Bend the rules and offer to take these imperfect applicants with less stringent security deposit / CS requirements than usual, thereby increasing the odds of closing lease and, therefore, the refi, but increasing the odds of tenant problems later on; or
  2. Hold fast to our standard, risk losing the tenants, and thereby delay the refi

I chose a middle path, where I loosened the security requirements without totally capitulating. Hopefully, the lease will close and the refi shortly thereafter.

Our business (and, probably, all business) is like that: A series of inter-connected choices I need to make, with far-from-perfect information and unpredictable consequences. Am just aiming to get most of them (and, ideally, the big ones!) right.

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