Dilemma Choosing Tenants For My First Rental Property

Wesley Kuo · 2016-07-14T10:22:36-07:00

Greetings BP family,I have a duplex in Whittier, California. Both units are identical: they are each 3b1b, 1,035 sqft, and single car garage with street parking.Currently I have 3 groups of tenants who I'd like to rent to but cannot decide who are the best 2 out of 3:1. A single family with 4 young kids. First impression is pretty good based on both appearance and attitude. They need to move because their current landlord is selling the property. I had a brief phone call with their landlord and he told me the family is a good tenant and they are never late on rent. Everything looks promising until I pulled the parents' credit reports. Their scores are just high 400s, and the reports indicate there are "serious delinquencies." They are aware of their scores, and they told me that they are in the process of repairing them. My agent who pulled reports told me that the husband was a victim of ID theft before. I am not sure if I should trust my gut feeling in the first place or let the credit reports overshadow the other merits from them.2.A single mom with 4 young kids and a section 8 voucher; they need to move also because their current landlord is selling the property. I have 0 experience on section 8 tenants but based on my research the pros & cons are 50/50. The mom's credit score is almost 700, and she talks very sincerely and looks eager to move in.3.A group of 4 college senior female students and a co-signer who is the father of one tenant. The numbers are pretty strong from co-signer's credit report. My only concern is that they are probably not as long-term as a single family since each tenant is not related and they are college students in 20s. The possibilities are endless for them once they graduate.What will be your pick? Which group will you leave behind and move forward with the other 2?Or should I host another viewing to find more qualified tenants?Thank you very much for helping!

Gene Mininger

Investor · Visalia, CA · Member since 2015 · 6 posts · 1 vote

10y

I would vote for #1 providing you gather that the former landlord was telling you the truth about their payment history. On their credit reports I wonder how recent are their missed payments?

1 Reply

JD MartinBusiness Member

Moderator

Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes

10y

First question: do you have criteria? If not, then what are you using to gauge the suitability of each tenant?

Based on my own criteria, Tenants 1 & 2 are out. I don't take anyone with serious credit deficiencies, don't believe current landlords who often just want them gone. I don't take Section 8 so tenant 2 is out unless she has enough income to pay on her own.

You should have some defined criteria as to what constitutes suitability as a tenant, lest you someday face a discrimination claim. Mine: 3x monthly rent income at minimum, no evictions, no serious credit report issues (generally that means no bankruptcies < 5 years, no recent charge-offs, no or almost no late payments, etc), no current or serious felonies, no Section 8. That covers the basics on background information for me. I don't do landlord queries because landlords that want problem tenants gone are more than willing to go Tony the Tiger on you when talking about the tenants.

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4 Reply

Wesley Kuo

OP

Sales Associate · Hacienda Heights, CA · Member since 2015 · 35 posts · 7 votes

10y

Originally posted by @Gene Mininger:

I would vote for #1 providing you gather that the former landlord was telling you the truth about their payment history.

On their credit reports I wonder how recent are their missed payments?

I saw the some delinquencies are fairly recent. The more I look into their reports the more concerned I become...

0 Reply

Wesley Kuo

OP

Sales Associate · Hacienda Heights, CA · Member since 2015 · 35 posts · 7 votes

10y

Originally posted by @JD Martin:

First question: do you have criteria? If not, then what are you using to gauge the suitability of each tenant?

Based on my own criteria, Tenants 1 & 2 are out. I don't take anyone with serious credit deficiencies, don't believe current landlords who often just want them gone. I don't take Section 8 so tenant 2 is out unless she has enough income to pay on her own.

You should have some defined criteria as to what constitutes suitability as a tenant, lest you someday face a discrimination claim. Mine: 3x monthly rent income at minimum, no evictions, no serious credit report issues (generally that means no bankruptcies < 5 years, no recent charge-offs, no or almost no late payments, etc), no current or serious felonies, no Section 8. That covers the basics on background information for me. I don't do landlord queries because landlords that want problem tenants gone are more than willing to go Tony the Tiger on you when talking about the tenants.

Thank you for your advice, Jd. This is my very first rental unit also the first RE investment, and I do not have a criteria in place yet. I need to establish some basic rules now. Tony the Tiger made me laugh :D

1 Reply

Ian Loew

Real Estate Agent · Montclair, NJ · Member since 2013 · 25 posts · 8 votes

10y

Anyway you can consider casting a wider net? All 3 options are weak.

We usually like to get anywhere from 5-6 qualified candidates.

They must have:

credit score of 650 or higher
clear background check
1 - 2 strong references (past landlords or employers)

At one of our 2 family homes we do except Section 8 tenants. Overall very happy with the program. If they loose their job we still get paid for a large portion of the rent. However your unit must be inspected yearly in the state of New Jersey. Just something to consider.

For screening tenants we found Cozy.co to be great. Applicants have to pay a nominal fee for their credit and background checks.

1 Reply

Brendon Woirhaye

Rental Property Investor · Whittier, CA · Member since 2014 · 324 posts · 268 votes

10y

I agree on the need to have your own written criteria, and use that in evaluating if someone is qualified or not. I like putting requirements up front - it allows unqualified candidates to filter themselves out (and avoid paying an application fee) and not take my time.

The crux of what I look for:

- 2.5x monthly rent gross verifiable income, debt to income ratio considered. If someone is self employed or paid under the table, we get a tax return. If they cheat on their taxes and don't declare their income, we don't consider it verifiable. I have used cosigner income, as you would in the case of the students.

- A credit report is run, lower scores will be partially qualified, meaning I may rent to them with a higher security deposit. If they have unlawful detainers / evictions on their records, I won't rent to them period. All tenants with bad credit are working on repairing them or had their identity stolen - rather I look for the pattern of behaviour. If they have a bunch of late payments and credit charge offs around the time of a serious medical incident or divorce, they may be working through it. If they have a history of running up large bills over the course of many years, you'll see it - outstanding debt to a few phone companies, cable companies, banks etc show a willingness to walk away from discretionary debt.

- Criminal record check is done. If they have prior felony or misdemenor convictions in a list of areas (sex offenses, drug-related charges, dishonesty / fraud, violence, child or elder abuse) they are not qualified. I rarely get tenants with criminal records - if they know they have it, they won't throw away their application fee by applying.

I am careful to not qualify or disqualify based on the age of the tenants (ie: children).

We always do employment checks and landlord checks, preferably with the second to last landlord as well as their current one. The second to last landlord has candor the current one doesn't. We actually have had current landlords tell us that they wouldn't rent to the tenant again, that they are loud and party a lot, and one told us that they were in the process of evicting the tenant and to stay away. The other thing we get from the landlords is a fact check on what the tenant has reported - the tenant says they have to move because the landlord is selling the house, the landlord says the tenant is leaving because they don't like the house rules.

For employment checks, get the employer / supervisor to confirm the facts. We had a candidate a couple months ago that did work for a company, but lied about their job position and salary (they provided professional paycheck stubs showing a $28 / hr pay rate, the employer confirmed they worked there but their pay was $10 / hr). We had another who had a new job as a professor at a university starting in a couple months, waving cash to prepay the first 3 months of rent. The employment check turned up that they had interviewed for the position but hadn't gotten it.

When we have multiple qualified tenants, we give priority based on:

- Credit score

- Tenant who is ready to move within 15 days

- First tenant to provide security deposit in full

Having clear quantifiable criteria helps protect us from claims of discrimination.

3 Reply

Cosmo Iannopollo

Investor · Wakefield, MA · Member since 2016 · 107 posts · 71 votes

10y

I've only had one experience renting so far, so take this for what it's worth, but I followed my gut as much as possible, set criteria and stuck to it. I had one family who was very interested but couldn't provide any verifiable income, asked how flexible I was on the payment due date, and were proposing have 4 adults living in a 2 bedroom apartment. I ultimately declined.

In your case, the 700 credit score is enticing if you're willing to take the section 8 risk. I was not. The eviction process is far too demanding. The college students are probably your safest bet out of your options (crazy to think), but I'd be charging a high security deposit.

I would keep looking. From your posts, it sounds like your guts aren't too thrilled with any option and that's a sign.

1 Reply

Thomas S.

Member since 2016 · 13k+ posts · 12k+ votes

10y

I would not accept any of them as is. #1 with a 400 credit and 4 kids is a landlords nightmare waiting to happen and #2 is financially just as unstable. I would never consider either under any circumstances. They do not meet my screening standards.

The third I would only consider if each student has their own qualified guarantor.

1 Reply

Wesley Kuo

OP

Sales Associate · Hacienda Heights, CA · Member since 2015 · 35 posts · 7 votes

10y

Thanks a lot Brendon Woirhaye ! These are very helpful. I also would like to know how long it usually take for a property from listed to rented? I have hosted 2 weekends of walk thru and met roughly 40 tenants. Out of those 40 I received 8 completed applications. The turn up seems low to me because my friend who has a condo in gated community in West Covina rented the place after first day of viewing.

0 Reply

Wesley Kuo

OP

Sales Associate · Hacienda Heights, CA · Member since 2015 · 35 posts · 7 votes

10y

I agree with you Cosmo Iannopollo As a rookie investor, I don't have years of knowledge and experience to rely upon but my hunch and first impression, but I definitely pick up more than a thing or two thanks to you all! BP family rocks

0 Reply

Cosmo Iannopollo

Investor · Wakefield, MA · Member since 2016 · 107 posts · 71 votes

10y

Patience and discipline. Patience and discipline.

1 Reply

Joe SplitrockPro Member

Moderator

Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes

10y

@Wesley Kuo you should not trust your gut feeling, because you don't have enough experience to have a valid gut feeling about screening tenants. I am not trying to be mean, but even experienced landlords can be fooled by a smooth talker. Trust what you can verify and have minimum standards such as 2 references, 3X monthly rent salary and 600 credit score.

If I had to pick two based on what you provided, I would pick number two and three. If I screened them for my properties, I would reject all three.

2 Reply

Brendon Woirhaye

Rental Property Investor · Whittier, CA · Member since 2014 · 324 posts · 268 votes

10y

Originally posted by @Wesley Kuo:

I also would like to know how long it usually take for a property from listed to rented?
I have hosted 2 weekends of walk thru and met roughly 40 tenants. Out of those 40 I received 8 completed applications. The turn up seems low to me because my friend who has a condo in gated community in West Covina rented the place after first day of viewing.

There are a lot of factors which go into how quickly the place rents, from the condition/features/layout of the property itself, the neighborhood, how you promote it, how picky you are about who you rent to, your price, neighborhood competition, the time of the month, the weather, and many other factors.

My process is to advertise right - promote what is good about the property and disclose what is bad - I don't want to waste a tenant's time (and my own) by misleading them about the fact that there is no laundry hookups or they will have a tough time finding parking. I communicate the requirements so people can self select out.

I post a listing on my website, craigslist, zillow, and put a sign up in the yard. I set open houses for a couple different times, some on weekends and some weekday evenings. Sometimes few people will show, other times many do. If I have a smaller number of higher quality prospects the whole process is more efficient.

Sometimes it takes a few weeks or even over a month to find the right tenant, other times (like a 1br I rented last month) goes at the first open house. I've even rented a place before the prior tenant moved out, although I avoid that now.

1 Reply

Stephen E.

St Thomas, Ontario · Member since 2013 · 575 posts · 408 votes

10y

@Wesley Kuo I go with the posters who have said take none of them. Tenant 1 is an absolute non starter. Good tenants are tenants who pay their bills. If they have credit ratings in the 400s they are serial non payers. What makes you think they will change the habits of a lifetime and decide to pay you? Allow these people in and an eviction is a certainty.

The second tenant with a 700 credit rating sounds reasonable but I have no experience with Section 8 and cannot comment on the relative desirability of such an applicant. Where I am government assistance income cannot be garnished. If this is the case in CA you may be in for a wild ride if they decide not to pay rent.

I have never liked the idea of being a student landlord. There is high turnover and there are multiple tenants to go after in search of rent. They are likely to move members in and out of the group and you will lose control of who is allowed into your property. Wear and tear is an issue and in general I find that student rentals provide insufficient premium in rent to compensate for the additional management time required.

I think you can do better if your units are well located and in good condition.

1 Reply

Penny ClarkPro Member

Sacramento, CA · Member since 2014 · 513 posts · 319 votes

10y

@Wesley Kuo, Yes, renting out your first property is scary, but you can't base your decision on gut feelings, as someone already said here, because tenant screening is too important. Get your rental criteria set up first (credit score, income amount, rental history, pet policy, etc) and follow it. Many here offered excellent suggestions already for you to use. The one thing I'd add is to put whichever tenant you choose on a month to month agreement so in case it doesn't work out, you both can exit the contract gracefully - or at least quickly.

Good luck to you!

1 Reply

Wesley Kuo

OP

Sales Associate · Hacienda Heights, CA · Member since 2015 · 35 posts · 7 votes

10y

Theses are all valid inputs. Thank you all very much for letting me borrow the experiences. My beginner landlord handbook is expanding :)

0 Reply

Account Closed

San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes

10y

Originally posted by @Wesley Kuo:

Theses are all valid inputs. Thank you all very much for letting me borrow the experiences. My beginner landlord handbook is expanding :)

Wesley, forgive me if I've already given you this link. I give it out a lot, and my old brain forgets who I've already given it to. This book was my bible. I learned so much about CA law, and it's easy to read and includes contracts (which I preferred to the Apt Assoc contracts) and all the other forms you need in CA:

http://www.nolo.com/products/the-california-landlo...

0 Reply

Account Closed

San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes

10y

Originally posted by @Brendon Woirhaye:

I agree on the need to have your own written criteria, and use that in evaluating if someone is qualified or not. I like putting requirements up front - it allows unqualified candidates to filter themselves out (and avoid paying an application fee) and not take my time.

The crux of what I look for:

- 2.5x monthly rent gross verifiable income, debt to income ratio considered. If someone is self employed or paid under the table, we get a tax return. If they cheat on their taxes and don't declare their income, we don't consider it verifiable. I have used cosigner income, as you would in the case of the students.

- A credit report is run, lower scores will be partially qualified, meaning I may rent to them with a higher security deposit. If they have unlawful detainers / evictions on their records, I won't rent to them period. All tenants with bad credit are working on repairing them or had their identity stolen - rather I look for the pattern of behaviour. If they have a bunch of late payments and credit charge offs around the time of a serious medical incident or divorce, they may be working through it. If they have a history of running up large bills over the course of many years, you'll see it - outstanding debt to a few phone companies, cable companies, banks etc show a willingness to walk away from discretionary debt.

- Criminal record check is done. If they have prior felony or misdemenor convictions in a list of areas (sex offenses, drug-related charges, dishonesty / fraud, violence, child or elder abuse) they are not qualified. I rarely get tenants with criminal records - if they know they have it, they won't throw away their application fee by applying.

I am careful to not qualify or disqualify based on the age of the tenants (ie: children).

We always do employment checks and landlord checks, preferably with the second to last landlord as well as their current one. The second to last landlord has candor the current one doesn't. We actually have had current landlords tell us that they wouldn't rent to the tenant again, that they are loud and party a lot, and one told us that they were in the process of evicting the tenant and to stay away. The other thing we get from the landlords is a fact check on what the tenant has reported - the tenant says they have to move because the landlord is selling the house, the landlord says the tenant is leaving because they don't like the house rules.

For employment checks, get the employer / supervisor to confirm the facts. We had a candidate a couple months ago that did work for a company, but lied about their job position and salary (they provided professional paycheck stubs showing a $28 / hr pay rate, the employer confirmed they worked there but their pay was $10 / hr). We had another who had a new job as a professor at a university starting in a couple months, waving cash to prepay the first 3 months of rent. The employment check turned up that they had interviewed for the position but hadn't gotten it.

When we have multiple qualified tenants, we give priority based on:

- Credit score

- Tenant who is ready to move within 15 days

- First tenant to provide security deposit in full

Having clear quantifiable criteria helps protect us from claims of discrimination.

Your posts are so great. I wonder, though, about your criteria regarding wanting tenants who are ready to move in 15 days. Wouldn't you want a tenant that has to give 30 days notice? Or are you expecting them to give their 30 days notice, but still pay you for the overlapping 2 weeks?

In the SF Bay Area, I often had people relocating who were ready to move in right now, because they were renting in an extended stay hotel while looking for housing. But, other than that, I found it to be a red flag when a tenant was ready to move right away. I was afraid I'd be the next landlord they didn't give proper notice to.

So, I'm wondering about your thinking on tenants ready to move in 15 days?

0 Reply

Brendon Woirhaye

Rental Property Investor · Whittier, CA · Member since 2014 · 324 posts · 268 votes

10y

The 15 day item came up because we had two generally equally qualified tenants a couple years back, one of them wanted to move in about 8 days, the other wanted 40. We generally don't end up with multiple fully qualified tenants at a time, because once we have one that meets the criteria, we will give them a reasonable amount of time to accept or decline and submit the deposit before doing the full check on other applicants. If we rent it, we'll return the application and fee to those we're not going to run credit for.

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Dilemma Choosing Tenants For My First Rental Property

Dilemma Choosing Tenants For My First Rental Property

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