Would you rent to this tenant?

Question

Hi, I'm new here and read the forum fairly regularly, but wanted some opinions on a prospective tenant. I've had my rental for 2 years, the first tenant was a lucky find (great renter, high income, exceptionally responsible), but moved out in December. Haven't recieved any "slam duck" applications to fill the vacancy.

So, I have an applicant that has a very good income but works for his mother at a company his mother started 3 years ago. He filed bankruptcy 3 years ago as well, moved out of his rental and back home (he's 27) to get back on his feet. Got married, had a kid, and moved into a rental across the street 1 year ago. Split from his wife 6 months ago, then his little brother moved into the house (brother has no rental history). Brother also works part time for mom and part time for UPS. Brother has good credit (700) but income does not meet my required income level (2.5x rent).

Seems like he's just trying to get back on his feet, but essentially all the income goes away if this family business goes under. It's a home health care franchise.

1 Prior landlord verification came back fine, the other didn't response after 3 attempts. Criminal background check came back clean for both.

Would you rent to them?
  
Thanks!

Josh Epstein · Answer

Sometimes the best guide in life and in real estate is your "gut instinct".. Just by reading this, it seems as if you know what you should do. You already set your parameters with tenants making 2.5x rent, and he falls short. So don't compromise. There are a lot of moving parts here and trust me, if you compromise your requirements in the rental game and will come around and bite you..

Josh

John Mireles · Answer

It's hard to provide specific answers without knowing anything about your property or its location. That said, you have three options - one improve your marketing, drop your prices or improve your property.

Marketing - Are you being seen on Craigslist? Are there any other sources for advertising to consider? What do your photos look like? Are they blurry point and shoots or do they truly showcase your property?

Prices - It doesn't hurt to start high but if you either get no bites or just get ones that are questionable, then it's time to drop the rent. Better to make a little less money but have a grade A tenant than bring in more and have to deal with all the issues that come with a sub-prime tenant.

Improve Your Property - Is your house in need of an update on the exterior and interior paint colors? I'm not talking about just another coat of Arizona white but colors that actually attract top notch renters. Are there some details that you can add to the property that will add a lot of value without costing much money? Maybe wood blinds instead of the usual mini blinds. If you only do the minimum, you'll get the minimum.

Ryan R. · Answer

Michelle James, what is your risk tolerance? Personally, I will drop the rent on my property to try and find a quality tenant than to desperately take any tenant I can find at a higher rent.

As you said, if you make a payment, you've just lowered your return for that year. Go ahead and drop the rent just a little bit and maybe you can find a quality tenant.

From my experience, a quality tenant will stay in place longer, take better care of your property and be more profitable in the long run than low-quality tenants paying top market rent. That's why tenants often leave; they find a better deal somewhere else. Make someone (quality tenant) a better deal than they already have.

Joel Owens · Answer

I would try to look for other tenants. There lives are really unstable right now and they may or may not succeed and a majority of the income is tied to  a family business.

If you go this route require an extra large deposit to compensate for the extra risk. If they balk wait for a better tenant.

Steve Babiak · Answer

This is a situation where a guarantor (AKA co-signer) might actually make sense.  Have you seen the condition of the interior of where they now live - that will tell you the future appearance of your place if you accept them?

Angie Brown · Answer

I personally wouldn't take the risk.  Nothing seems to really stand out strong with this potential tenant ie: stong rental history, makes a lot of money, strong employment (working for his family might as well be self-employed).

If the 1st potential tenant makes "good money" then why does the brother have to make 2.5x the rent?  and does "good money" cover his expenses being newly divorced?  too many what if's for me.

Joel Owens · Answer

"It's in a decent blue-collar neighborhood. The guys are renting a very similiar house across the street for $775, but it's a dump compared to mine and a bit smaller. It's in foreclosure, that is why they want to move."

So they were fine living in a dump for cheap rent other than the fact the only reason they were moving was that it was foreclosing. That in itself tells me a lot about the tenants. If they had standards they would have moved from the dump long before a foreclosure notice. Last thing you need is tenants to do damage to the place where you say you can't afford anymore capital improvements.

Again I would take a very large deposit to make them have skin in the game to be responsible for their actions. I wouldn't care as much about the co-signor as having the extra cold hard cash  if they default.

Seasoned tenants have a VERY SMOOTH sales pitch for moving into a property and convincing you to take a chance on them. I have seen some cry and get emotional and act calm and thank you a million times for giving them a chance. 1 month later and they are trashing the place.

If you are just wanting to service the mortgage drop the rent to where you land a quality tenant who will not thrash the place. The iffy tenants want you to take a chance on them but do not want to pay up for taking that chance. They can't have the cake and eat it too.

Jon K. · Answer

Any business can fail. I don't see the "family business" being THAT much of a hang-up compared to his other life choices. Why does it matter who owns his company so long as they're a verifiable business with his verifiable income?

Yes, if he fights with mom, he might get fired. But, if you fight with any boss, you might get fired.

Bottom line: his credit sucks. He had a bankruptcy. Do you allow bankruptcies?

He has one good rental reference. Is that his only prior rental?

Did you factor in potential child support, etc. to income? Is he current on current credit cards?

These guys want to be roommates? Does one qualify on their own?

Gene Hacker · Answer

I personally never say no to applicants, I just ask for them to bring more to the table...usually a higher deposit or a co-signer with good credit/income/assets.  If they cannot meet my needs than we pass but ultimately it falls on them.

Of course the exception to this rule is criminal types.

Michelle James · Answer

Thanks for the replies. The gut instinct that Josh mentions is what's tripping me up. I have a positive read on this guy, that he's just trying to rebuild his life after making some stupid choices in his twenties. Then again, I don't want to be the one paying for it if he goes back to making poor choices in regard to his credit.

To clarify, the higher earner brother meets and exceeds the income qualitifications, but has that bankruptcy and works for the family business.

The lower earner brother that doesn't meet the income requirements is young and has a good, but not lengthy credit histroy.

I clear enough between the rent and mortgage payment to drop the price from $900 down to $875 for $850. (mortgage payment is $650), so that is an idea. The house is older but completely remodeled, nicely outfitted, just replaced all the floors. It would not make sense to invest in any additional capital improvements. I consider it marketed well as that is what I do in my day job.

It's in a decent blue-collar neighborhood. The guys are renting a very similiar house across the street for $775, but it's a dump compared to mine and a bit smaller. It's in foreclosure, that is why they want to move.

Had a water leak last year that put it in the red, so I'm trying to recoup those monies and get it back to being profitable. I guess that is why I'm a little more eagar to move forward than I should be.

Would you rent to this tenant?

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