General Landlording & Rental Properties
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback
Updated about 7 years ago, 09/21/2017
Another screening question (bad credit vs good rental history)
Hello beautiful people of BP,
I know I'll make the final call, but as a LL of 15 months I'm still trying to determine what really matters most and what to avoid when placing a tenant. And I'm not too proud to ask for advice, so here I am :) I do have hardlined "principles" for denial for some items like felonies, evictions, and income, but credit is a gray area for me.
Anyway, I have an applicant that I get a good gut feel from, has no criminal history, has no evictions, and the pay stub indicates the income is 4.5x the monthly rent. Applicant works for an insurance company so part of that is commission, but salary is still 3.5x rent. So that's the good. Here's the bad, if I understand the MySmartmove report, the applicant had one bankruptcy in 2011, and currently has some collections (pic shows some of what I was given).
Part of me says this is a person that maybe isn't the most responsible spender, but knows that rent comes first. Part of me says this is a person that doesn't pay what they owe.
I'll be calling their employer and previous LLs, but assuming that checks out, what say you....rent or pass?
@Dustin Beam what about the tradelines, are there any with late payments listed? If there were collections and late payments on the tradelines that may indicate an issue.
Originally posted by @Rick S.:
@Dustin Beam what about the tradelines, are there any with late payments listed? If there were collections and late payments on the tradelines that may indicate an issue.
There were 3 tradelines, but only one open. The open tradeline is for a student loan.
I've decided I will rent to her, but will require a 1.5 month's rent as the deposit. Typically I do deposit = rent. I feel comfortable enough w/ the gut check feeling and her income amount. Assuming that her previous landlords and place of employment checks out.
These apartments are somewhere in the B/C class area depending on what your method of rating them are. In my experience so far, I've found that I generally don't get applications from people w/ 750 credit and tons of money. Usually there is some gray area items unfortunately.
if its "C" type properties you are renting, its gonna be pretty typical of the average renter. A 750 fico is pretty damn good if you are getting that. how long they lived at a previous address, and time on the job have been better indicators for me, as opposed to a missed cell phone bill.
Originally posted by @Chuy Gonzalez:
if its "C" type properties you are renting, its gonna be pretty typical of the average renter. A 750 fico is pretty damn good if you are getting that. how long they lived at a previous address, and time on the job have been better indicators for me, as opposed to a missed cell phone bill.
You're right and I agree, I haven't really gotten lots of perfect tenants. Most have at least some issue that is less than ideal.
@Dustin Beam if you are determined to take this tenant I would find a flat fee eviction lawyer now so you are ready when the tenant decides to put you on the list of creditors he/she views as payment optional. One of whom is apparently Laclede Residential Primary which sounds suspiciously as though it could be a REIT. More seriously, this is a risk you just do not want to take. I do not take tenants with collections because I do not take tenants who do not pay their bills on the grounds that they may decide not to pay my bills. How many units do you own and how many other revenue streams do you have to cover the losses if he/she stops payment? How many evictions have you gone through and do you have the reserves to wait it out with no rental income while you have to keep paying the mortgage, property tax, insurance and all other operating costs, plus the lawyer and court costs? Then there could be damages if the tenant decides to take out their frustrations on your property. Do you feel like costly renovations and repairs of vandalism?
I think you are being much too cavalier about this tenancy decision. You need to be far more cautious about just who you give the keys to. It could be months before you get your property back and you might not get a cent in rent and then there could be thousands in damages. It is far better to stay vacant, wait for a month and go without a month's rent than it is to take a non performing tenant and have to manage a rapidly deteriorating bad tenant situation. Good credit needs to become one of your core principles in tenancy granting decisions because a tenancy granting decision is in fact a credit granting decision. If your rent is $1,000 a month and you lease for a year you are banking on them being good to pay you $12,000. What is the likelihood of this tenant reliably doing that? The tenant can't even pay DirectTV on time, and not even on time, it is so bad they have set collections onto them. This is not a good risk for you. You should not even be considering this person seriously at all.
Originally posted by @Stephen E.:
@Dustin Beam if you are determined to take this tenant I would find a flat fee eviction lawyer now so you are ready when the tenant decides to put you on the list of creditors he/she views as payment optional. One of whom is apparently Laclede Residential Primary which sounds suspiciously as though it could be a REIT. More seriously, this is a risk you just do not want to take. I do not take tenants with collections because I do not take tenants who do not pay their bills on the grounds that they may decide not to pay my bills. How many units do you own and how many other revenue streams do you have to cover the losses if he/she stops payment? How many evictions have you gone through and do you have the reserves to wait it out with no rental income while you have to keep paying the mortgage, property tax, insurance and all other operating costs, plus the lawyer and court costs? Then there could be damages if the tenant decides to take out their frustrations on your property. Do you feel like costly renovations and repairs of vandalism?
I think you are being much too cavalier about this tenancy decision. You need to be far more cautious about just who you give the keys to. It could be months before you get your property back and you might not get a cent in rent and then there could be thousands in damages. It is far better to stay vacant, wait for a month and go without a month's rent than it is to take a non performing tenant and have to manage a rapidly deteriorating bad tenant situation. Good credit needs to become one of your core principles in tenancy granting decisions because a tenancy granting decision is in fact a credit granting decision. If your rent is $1,000 a month and you lease for a year you are banking on them being good to pay you $12,000. What is the likelihood of this tenant reliably doing that? The tenant can't even pay DirectTV on time, and not even on time, it is so bad they have set collections onto them. This is not a good risk for you. You should not even be considering this person seriously at all.
I can't disagree entirely with your advice. This unit is one of twelve. I've had to evict two tenants the last 15 months, both leased by previous owner. I did have to give one tenant I placed the option to leave or get evicted after he lost his job and was late. He left voluntarily.
But like I said before, in this location, tenants with great credit, plenty of income, and no red flags whatsoever don't come along often unfortunately. Not that they are all terrible, they aren't, just not picture perfect
It does not appear to me that she has learned from her bankruptcy. I don't take applicants with accounts in collections. Why run a credit report if you are not going to use that information to inform your decisions? If you do take her, go month to month. What evidence do you have, other than her word, that she has a good rental history?
I generally don't care about credit but I do take a look what makes it bad.
In this case, collections are not good, especially on $180....really? All of them are quite recent.
I'd call her landlords and verify why she left the previous place.
With all that said, I'd still took this tenant - her income overwrite these collections.
If she didn't pay utilities, so what? It's between her and the gas company! She still will pay the rent because she has to live somewhere and eviction is not beneficial to her.
I wouldn't go month-by-month, why? I would state clearly what she owe me $12K for the year in installments $1K/mo and if she feels that it's too hard for her budget (mention the collections) then we better not sign the lease.
Definitely would help to discuss WHY she has these collections, how she plans to get on the track etc.
Depending on the laws in your state, you might be able to collect first and last months rent in addition to security deposit.
I wouldn't pass on tenant just because her credit is not that good. Her rental history (no evictions) and income (4.5 times rent!) are much more inmportant factors!
ps just FYI I've got collection because AT&T billed me for my own equipment. I called them for 6 months, cancelled the services as soon as I've got their bill, called to collection agency as soon as I've got their letter - nothing helps.....so, people do have trouble sometimes where they don't expect from. Well, maybe not 3 times in the row...lol
Originally posted by @Bettina F.:
It does not appear to me that she has learned from her bankruptcy. I don't take applicants with accounts in collections. Why run a credit report if you are not going to use that information to inform your decisions? If you do take her, go month to month. What evidence do you have, other than her word, that she has a good rental history?
Well the credit report is comprehensive. It covers criminal, credit, and eviction history. Like I've said, people renting in this area generally aren't the most responsible financially. I would say virtually every single tenant lives paycheck to paycheck. Unfortunate reality.
I'm not excusing bad spending habits. I'd prefer a stellar report. On the flip side, she's apparently always made sure her landlords get paid. That does mean something to me. I won't rent to anyone with an eviction, no exceptions.
As far as proof of good rental history, besides no evictions, one landlord had confirmed the applicant was a good tenant. I'm still waiting to hear from the other. Obviously if that one gives less than stellar reviews, I won't rent to the applicant.
I would ask, not sarcastically, what benefit does going m2m have? Yes technically I can tell the tenant to leave without an eviction (with appropriate notice), but if they don't leave don't I have to evict anyway?
I rent class B apartments. My tenants are hairdressers, medical office assistants, Wal Mart workers -- they all live paycheck to paycheck, and yet they do not have accounts in collections. There are many lower income people who manage their money well and pay their bills on time. The one thing my tenants DO have is clean credit and no evictions on their records -- and they want to keep it that way. With month to month, I can give a 30 day notice to vacate and they will leave -- because they do not want to mess up their record. I save the court costs, get faster possession of my unit, and get it back on the market, earning me money, faster. Since my tenants are living paycheck to paycheck, I would have a hard time collecting any back rent or damages awarded by the court in any case, so I have no interest in going that route. I have even given tenants notice to leave and they returned the unit in a condition where they received a partial SD refund.
Just make sure her former LL, who gave the glowing reference, was really her LL. Something about this situation does not add up. If her income really is 4.5 x the rent, why does she have so many unpaid bills? (I would directly ask the tenant this, and watch closely for her response!) Be sure to verify her employment and income. Applicants can easily buy fake pay stubs off the internet.
I've come to believe that bad credit is pretty much universal. I would swoon from shock if I actually saw a good credit report.
The big three credit killers I've come to expect are student loans, medical bills, and divorce.
What I look for is the age of the bad credit. I'm going to be much more sympathetic to someone who ran into trouble in the past and doesn't have anything current, as opposed to someone with a lot of recent collection accounts.
And you can also ask for a higher deposit and/or a co-signer with good credit.
Originally posted by @Bettina F.:
I rent class B apartments. My tenants are hairdressers, medical office assistants, Wal Mart workers -- they all live paycheck to paycheck, and yet they do not have accounts in collections. There are many lower income people who manage their money well and pay their bills on time. The one thing my tenants DO have is clean credit and no evictions on their records -- and they want to keep it that way. With month to month, I can give a 30 day notice to vacate and they will leave -- because they do not want to mess up their record. I save the court costs, get faster possession of my unit, and get it back on the market, earning me money, faster. Since my tenants are living paycheck to paycheck, I would have a hard time collecting any back rent or damages awarded by the court in any case, so I have no interest in going that route. I have even given tenants notice to leave and they returned the unit in a condition where they received a partial SD refund.
Just make sure her former LL, who gave the glowing reference, was really her LL. Something about this situation does not add up. If her income really is 4.5 x the rent, why does she have so many unpaid bills? (I would directly ask the tenant this, and watch closely for her response!) Be sure to verify her employment and income. Applicants can easily buy fake pay stubs off the internet.
I've already spoken with applicant's employer, whose number I found on the internet (not from application). She is in good standing with accurate reported income. Pay stubs were also provided.
Funny enough, her explanation fell in line exactly with what the post below yours mentioned. Her bankruptcy was due to divorce and current debts stemmed from medical problems. Is that the truth? I can't say for sure.
Originally posted by @Fred Heller:
I've come to believe that bad credit is pretty much universal. I would swoon from shock if I actually saw a good credit report.
The big three credit killers I've come to expect are student loans, medical bills, and divorce.
What I look for is the age of the bad credit. I'm going to be much more sympathetic to someone who ran into trouble in the past and doesn't have anything current, as opposed to someone with a lot of recent collection accounts.
And you can also ask for a higher deposit and/or a co-signer with good credit.
Applicant had agreed to pay a higher deposit due to her credit. I normally have deposit the same as rent, but she will put down 1.5x rent for deposit. It's maybe not perfect, but more insurance should things go south.
Again,this all hinges on the other landlord giving a positive review. If not, it won't matter.
@Dustin Beam Based on her credit report she has recently not paid her cable bill (Directv) and utilities (Laclede). These are major red flags for me when I am screening tenants.
- Michael Noto
I had a tenant apply that filled for bankruptcy for one of my properties and I was working with a realtor at the time. He encouraged me to take her and said he would put a guarantee on it that she would pay the rent or he would refund the commission. The commission was only one month's rent and I believe getting an eviction processed costs about $3K, plus you know the there's turnover cost. In the end, I went with my gut, sometimes you just have to, you will kick yourself later if you don't listen to your inner feelings. I reposted the vacancy and held an open house and selected a different tenant after that. Better to be safe than sorry, especially when its my money on the line. As a side note, I don't feel he earned his commission at all since I held the open house, posted the listing, and basically found the tenant...lessons you learn with experience...but that's a whole other story....
One other thing, just remember its probably better to wait on a good tenant that will *hopefully* not stiff you than to have a tenant who shows a pattern of not being financially responsible. There will always be other applicants.
The bankruptcy happened in 2011.. it's 2017, so 6 years ago... she hasn't had any problems paying bills since! Personally, at 3.5x salary+ income/rent ratio, I'd absolutely rent to her! I'd structure my lease to offer a discount if paid by the first, so that way she has an incentive to pay early, not to mention check your state laws about the maximum late penalty. I'd also do M2M, in case something happens it's an easy out to cancel the lease.