The Risk Of Being Overqualified and What To Do

First of all, I’d like to thank many of you for providing some feedback on which tenants to choose.  I’ve come to a decision on who to rent to, and it’s actually nobody on the list!

The 28 year old Googler who makes $450,000 a year with $400,000 in savings looked phenomenal on paper, but as I got to thinking, he just didn’t seem like the right guy for the place.  A guy so young, making so much will more than likely look for a nicer place to rent, or buy a year from now since he’s a transplant from New York City.

Let’s say he gets no raise and still makes $450,000 in 2012, he’ll likely have around $500,000 in savings at 29.  With those kind of financials, and a girlfriend who also works at Google, there’s little doubt in my mind they’ll put 20% down on a $1 to $1.5 million home somewhere in the city.  As a landlord, duration is an important metric and I don’t want to go through this process again in a year, especially when my last tenants have been there for four years.

The Googler and I traded e-mails back and forth figuring each other out.  I basically suggested he really take the time to explore all the great neighborhoods in San Francisco.  We came to a mutual agreement that my place wasn’t for him.

LIVING BELOW YOUR MEANS

It’s commendable that someone who makes so much is willing to rent a place so far below what he can afford.  People with this type of income are generally in the $5,000-$6,000+/month rent range or own.  If I knew he would be in the apartment for at least 2 years, of course I would rent to him.  But I know the chances of that is small.

Living relatively frugally was basically the feedback I got from all interested applicants as they spend just 10-13% of their gross income on rent, hopefully investing and saving the rest.  It gives me confidence that people aren’t leveraging up and going crazy with their consumption.

The last thing we want is another relapse of 2008-2009 where credit shuts down, millions of people lose their jobs, and socioeconomic warfare starts blaring.  I guess you’re already seeing it with the occupy Wall St. protesters who could use that time developing their skills instead.

THE LEAP OF FAITH

The “winner” of the apartment lottery isn’t any of the 5 highly qualified candidates, instead, the winner is a single, 55 year old woman with a lovely personality.  She relocated from the east coast thanks to a 3-year job offer to work in the arts as a member of the board.  With an income of $140,000, she makes roughly $200,000 less than the other top candidates, but still earns 40X the monthly rent.  Her liquid savings was also 60% less than average, but her 401K is in the hundreds of thousands.

If I didn’t see the financials of the other top candidates, I would think this tenant’s financials were great.  They are good on a stand alone basis, and I’m taking a leap of faith that she will pay the rent on time and take care of the place.  She was a homeowner before and came very organized with all her documents in a manila folder.  She smiled a lot, made a couple jokes, and reached out over e-mail afterward.  I immediately felt that we built a great rapport that could last for the long run.

At $140,000 a year, paying $3,300-$3,700 is probably the most you can comfortably pay in rent after taxes.  As a result, my place is at the upper end of what she can afford as she “lives it up” a little.  I also felt that she would appreciate the place much more simply because she was reaching a little bit, and I mentioned that I priced it 6% cheaper than the market to find the best tenant possible.  The final thing she said that sealed the deal was her desire to stay for 2-3 years, matching the duration of her contract.  That is music to my ears!

PARALLEL TO EMPLOYMENT OVERQUALIFICATION ISSUES

After a certain amount of income / qualification, more money and more experience is not necessary.  Overqualification can seriously become a risk to the applicant’s chances of landing anything.  An employer who is looking for a person with three years out of undergrad will be hard-pressed to hire someone with 10 years of experience who is willing to accept the same pay.  Why?  Because the employer will fear that the candidate will bolt as soon as the job market recovers.

The parallels with finding an apartment and finding a job is uncannily similar!  Managers and landlords do not want turnover.  We are deathly allergic to turnover, which is why if you keep hopping around every 2 years, you’re eventually going to reach an age and a point where nobody will take the risk on you.

I would much rather have a tenant who stays for 5 years and earn 6% less than market, than charge market rent and have to go through this process every year.  As a manager, I’d rather have a good employee who sticks with me for 5 years, than a great employee who bounces after 1 year for greener pastures.  Funny enough, beautiful women tell me that they’d much rather have an average looking guy than a stud muffin because they are afraid of competing with other women and losing him!

APPLY WITHIN YOUR RANGE AND MISLEAD WITH GOOD INTENTIONS

Employers, landlords and even ladies looking for love think in rough bands.  If you are below or above the band, your chances pretty much get thrown out the window since there are so many eligible people already within the band.

If you do have a Master’s degree but are willing to work a job that pays an undergraduate degree salary, then take off that Master’s degree from your resume.  If you do love the apartment that costs $3,500 a year, but you make $1 million a year and have every intention of staying there for 2 years or longer, put down that you only make $200,000.

Some may think this is misleading, but if your ultimate intentions are good eg you don’t care about the money and love the job, or truly enjoy the location and simple living while planning to stay in the apartment for years, then go for it!  Being “too smart”, “too qualified”, “too beautiful” or “too rich” shouldn’t nullify your chances.  You can always own up to your credentials if they ask, but by then, you’ll have shown an employer how much you love the work, or the landlord how much you enjoy the apartment that it really won’t matter one bit.

Readers, what are the risks of being overqualified and making too much money in this economy?  Do you feel you have to dumb yourself down or make yourself seem more poor to get what you want?

If you love the job or apartment, isn’t that good enough?  Why should your over-qualification inhibit you from getting something you want?

Can you blame me for shying away from the wealthier candidates?

Regards,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. says

    Interesting.. some professional buyers make the same choices when analyzing quotes on commercial bid tabulation: throw out the high and the low bid, and only look at the rest.

  2. says

    I actually have friends within union-dominated fields that have had to hold their masters degrees of their application resumes due to the fact it would have automatically eliminated them from contention. The unions (especially in education) have built in non-negotiable rates for those who have upped their credentials, and consequently administrators refuse to hire you. Therefore, you have to play this game where you get a permanent contract and then announce that you magically have a masters degree and are entitled to more pay. Weird, weird, system.

  3. says

    That is really interesting. I always thought about how people could overqualify for a job (I am still waiting to hear back from the 7-11 I applied to back in grad school in 1990), but never thought about it from a renter/homeowner perspective. It sounds like you did the right thing and picked someone that will probably want to stay there longer term. I am sure going through the whole ‘tenant search’ is draining and you want to minimize the time spent on the process. Hopefully this woman will meet a nice man who is handy and will move in. Then you won’t have to worry about maintenance work either!

    • says

      As a landlord, yes, I’d love for her to meet a nice handyman who doesn’t live with her and doesn’t convince her to move in with him!

      Otherwise, single is the perfect way to go!

  4. says

    Your selection is right on! She wil stay the 2-3 years and there is no reason to move.

    When I was interviewing in the business world I would only show 10-15 years experience to keep from looking overqualified and to maintain an “age”. There still is a prejudice against older workers out there.

    • says

      Thx for all your input! I think she will stay 3 years. She said it depends on how much I raise the rent for the 3rd year since my place isn’t under rent control.

      I told her basically it depends on how great a tenant she is! I don’t want to raise the rent if it squeezes her. The most would be $100-150/month after two years.

      I hear you on the older worker prejudices. If she was over 62, she’d be in the protective tenant class. That becomes tough if I ever want to sell the place.

  5. Untemplater says

    Congrats on finding a good tenant! You must be so relieved. That’ll be great if she loves the place and stays multiple years.

    I know what you mean about overqualified applicants. When I’m going through resumes for an entry level position I always question people with multiple degrees or high paying prior work experience. Flight risk is huge!

  6. says

    I’m glad you found a good tenant- she sounds lovely and stable, and it’s great that she wants to stay for 2-3 years.

    I loved reading your thought processes and am also shocked at how much some people make! Yowza!

  7. says

    You know I’ve always known that you can overqualify for a job, but I never really thought about it in terms of renting or buying a home. Most people (especially judging by most of your readers’ suggestions) would have gone with the person who made the most money, but you’ve really thought this through. Staying power is key! I hope Young Google and his girlfriend also find something a bit more realistic for themselves as well. Sounds like they were trying to be frugal, but may have gone just a bit too far! Anyway, congratulations on finding your renter!

    • says

      At 28, I think he came into much moree money than he though possible so he’s not used to speeding it yet. It’s very understandable as most folks who make $450k in SF are usually in their mid 30s.

      We shall see about this new tenant!

  8. says

    Those numbers are huge. However I respect the fact that the market has determined the high value of those specialized skills, unlike being born into royalty, for example.

    I think exposure to this wealth and power at 28 might make one a little reckless, and I wouldn’t want to be on the receiving end of those whims.

    Hopefully you have a more positive experience than Sandy in NYC.

    • says

      I think it could be safe to assume that the majority of landlords will have more positive experiences than Sandy’s previous tenant. What a nightmare! I hope her new tenant is better. It must be!

  9. says

    I too found it fascinating to see how much money some of these people make and to see how competitive it is to rent an apartment there.

    We have been in our current apartment for many years (can’t wait to leave and buy a house, but that is still a few years down the road), but the landlords have not taken much care with the tenants in the apartment below us, and there is turn over every year or two. Former tenants including an alcholic who never paid his rent and a lawyer who lost her job 18 months ago and turns down every job offer she receives because they are “below her salary requirements.” She moved out a few months ago because she was several months behind in rent. I wish the landlords thought as carefully about tenants as you do.

  10. says

    No, I don’t blame you. You have to look out for numero uno.

    But, being over qualified for anything can be a bit of a burden in these hard times. I’ve seen it first hand fairly often in the workplace. Many hard workers are getting left without work because they’re over-qualified for the only work that is available.

    I completely understand their frustrations, but can also understand where the employers are coming from too…

    It can definitely be quite the predicament some times.

  11. Darwin's Money says

    I’ve been seeing this for years now wrt job candidates. One guy in particular stands out. He was a recently laid-off PhD Harvard chemist. The works. Years of experience, worked on great programs, all kinds of accolades, but our company basically shut down that whole group since no products were coming out of the group. So, he showed up at a job fair I was at looking for an entry-level supervisor position. I felt bad for the guy and would have loved to have helped him, but I didn’t feel he would be a good candidate and didn’t put him in “the list” for the interviews we’d be conducting. The guy was just TOO qualified. There’s no way someone with that background was going to stick around to fight with hourlies about their break time or fill out time cards. He’d be miserable in the job and if something better/higher-paying came around, he’d have jumped and it would have been a bad hire. There’s something to be said for getting the right fit, not someone that’s TOO good.

  12. says

    Hmm, very clever on your part! I think you are right, why go through all the trouble and then have the google superstar move out on you (as any of us would if we had that kind of money)…

    Besides with that kind of money, and being so young… Who knows what the guy could or would do! You might go over to the property and find that there was an elephant in the kitchen (or wherever). With that kind of money and youth, anything goes…

  13. says

    By 20′s Finance:

    The law does have an arbitrary dividing line. I am not sure it does that much to encourage middle to low income families to have children. I think it helps, but not even a consideration for those families. I think it is hard to set the line, but it has to be set somewhere. Middle and low income families rightfully deserve more assistance, if you ask me. :)
    P.S. I agree that overpopulation is a problem and that we should do our part in working to reverse this.

  14. says

    Sounds like you made a good choice. Congrats on selecting your new tenant. Seems like you went with your gut feeling in the end. I think your odds with her staying a few years is high. Moving is not fun and can be expensive.

  15. says

    It’s so nice to have tenants. I know what it feels like when you are having trouble finding a tenant. Renting multiple years really helps too. My last renters stayed for 3 years before they left this summer. Fortunately, I found another renter within 1 month. Our company is trying to lay off older generation. It’s not pretty but I guess it is necessary to cut costs.

  16. says

    What an interesting perspective! I understand fully your concern over renting to the Googler, but the concept of reviewing his financials is very foreign to me… In my province, landlords aren’t allowed to ask for anything like that due to privacy laws etc. Is this routine in your area? You ask a potential tenant to come complete with 401k statements, savings balances etc in addition to their pay stubs? I find this to be much more landlord-friendly than what we have here :)

    • says

      Nothing is mandatory. Applicants are recommended to bring as much info as they are comfortable presenting to present their case.

      If you don’t look at financials, what are you basing your decision on? Looks? Ethnicity? Now that’s illegal.

  17. Abby says

    Hello, I’m thinking about rental property. Found this thread. Did the tenant live up to the standard, and stay the full 3 years?

    • says

      Got another tenant who stayed for 1.4 years and moved in with her boyfriend. She was the best, but sadly had to go. But, I was able to pump the rent from $3,300/m to $3,800 after she left so that is a win!

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