Why I Love bad credit tenants & they love me back!
Why I Love bad credit tenants & they love me back!
Are you one of those landlords that quickly dismiss potential tenants that have bad credit?
If you are, you may be throwing away money and the opportunity to help well-deserving people.
One would be surprised to know who has bad credit. I have come across, top government officials, lawyers, doctors, nurses, CEO’s, you name it, that have bad credit.
As a landlord seeking tenants, it is important to look at the entire profile of prospective tenants and not just credit scores. While credit scores are important, you may be throwing away money by refusing to consider these applicants as tenants.
If your prospective tenant has bad credit (under 615 credit score), try to figure out why, also consider their income, debt and savings accounts. I can’t count how many times I have come across tenants that make over $100k at their job, have a substantial savings accounts but had a short-sale, foreclosure, identity stolen or divorce that destroyed their credit. As a realtor/ landlord for many years, I would strongly consider this person(s) as a tenant(s).
The SECRETS to making extra money from bad credit tenants
When you apply for a credit card, don’t you pay a higher interest rate if you have bad credit? The credit card company charges a premium for the added risk.
Accepting a tenant with bad credit is an added risk for a landlord, and for that, I charge tenants a premium. There are several ways to reduce your risk of losing money to a bad credit tenant. The 2 main ways are below:
1) Get 2 months of security deposit instead of 1 month
2) Charge a premium on rent, for example $150 extra
3) Ask to see their car & plan a surprise visit at their current residence. How they treat where they live and what they drive, is usually how they will treat your property.
Just earlier this year, I had a family apply to rent one of my town-homes. The applicants had solid paying jobs, one car note, a great amount of saving but horrible credit. They were more than willing to pay a rent premium and leave 2 months deposit, especially after being denied rental acceptance by several landlords.
A true WIN-WIN situation for both, the family got to rent a great home in a good school zone and I get the additional income of $155 more per month that I would NOT have gotten from a renter with good credit (700+ score).
(Be sure to check with your county about potential rental ceilings that limit the amount of rent you can charge tenants & the maximum amount of security deposit you can collect)
Comments (8)
I see that Kareem Fleming is in Arlington VA. I can see that strategy working there. I am more like Dawn A. All my tenants have bad credit. AND they have such low income the simply can't afford more. Kareem, can you find good deals for rentals in Arlington?
Ned Carey, almost 12 years ago
Hey Ned Carey, deals in Arlington are hard to come by unless you want to do new construction. We are now seeing 5 or more offers and escalation clauses up to $125k over list price. Its crazy here. There are only about 13 homes single families for sale under $900k.
Kareem Fleming, almost 12 years ago
I guess you better charge a premium for poor credit!
Ned Carey, almost 12 years ago
yes sir! :)
Kareem Fleming, almost 12 years ago
Kareem Fleming you highlighted the upside of credit poor tenants, but you didn't mention that the downside is a blow the water line breach. It is important to understand and take into consideration how an applicant ruined their score - I agree. But, as Dawn A. wrote, that score is typically a forewarning. I'm still stinging from the last time I made an exception...
Al Williamson, almost 12 years ago
I hear that Ali. One does have to be careful but I've seen tenants with good credit wreck places as well so there is always a degree of risk involved.
Kareem Fleming, almost 12 years ago
If I didn't rent to tenants with bad credit, I wouldn't have many tenants. The issue is that many people in the US don't know financial topics such as getting a good credit score, how to balance your checkbook, how to save money, how to budget, etc. These things are not taught in school, so they learn on their own or learn from their parents who (especially in low income areas) are not the best examples. This is why some people want to become homeowners, but all they know is that they have to "save money". And then the fancy cell phone comes along, or they have to have X branded apparel, or new rims for their car, or some hot new ringtones, or money for Facebook games, etc. and they wonder why they don't have any money left over each month after paying their bills.
Dawn Anastasi, almost 12 years ago
Hope you find it useful!
Kareem Fleming, almost 12 years ago