Late rents and what they mean
A little unconventional wisdom based on mortgage payment default rates. You took in a renter, and now it is the first week of the month, and no rent is in hand.
Should you be concerned? If so, how much should you be concerned? Odds are you have a problem and are headed for an eviction, but here’s something to think about.
If the tenants credit score is 700+, they are probably just absent minded and need a reminder. Once they get the automated payments set up, or a monthly text from you, you will not have a problem. The anticipated delinquency rate is ~5%.
If their credit score is 650 – 699, they may be trying to pull something, and they may be having issues. But odds are, they are probably just a bit sloppy, and disorganized and not much of a reason to be concerned. The delinquency rate can be expected to be ~15%.
If their credit score is 600 – 649, they probably are starting to have an issues, and will probably be late a bit more often if there is an issue. They’re at least going to try to keep the rent payments timely, but issues may still result. Keep your eye on them, don’t give them too much slack, and you should be OK. The delinquency rate can be expected to be ~31%.
If their credit score is 550 – 599, they are trying to pull a fast one on you. Don’t let them take you for more than the law allows. It may get better, if you still believe in Santa. I bet this is not their first eviction. Odds are, they had slow rent payments right after the first moth. The delinquency rate can be expected to be ~51%.
If their credit score is 500 – 549, they are lying and must go. It will not get better from here. If you have a two month’s of a deposit, good for you. Get them out before the deposit is used up. You should have passed on these renters, once you see the damage left behind you will wish you would have. The delinquency rate can be expected to be ~71%.
If their credit score is less than 500, you have a fool for a property manager.
Have you ever been late with your rent? If so, where do you fit in the above list? If you have tenants that are late on rent, where do they fit in on the list?
Comments (3)
Interesting post. Where did you get the data? Is it based on your property management and tenant screening records? It would be interesting to see if other landlords have similar findings. I do not have enough tenants to draw any conclusions. I also tend to look at the content of the credit report and not the score when screening. Do you use credit score as a means to weed out unqualified applicants?
Matt Nehring, over 10 years ago
I have 24 rentals, and my experience has been similar. But the base of the information is from delinquency rate default statistics. You can Google that to get the delinquency rate. The credit score is a summary of the entire report. If you are looking at the content of the report, rather than the score, make sure you can do it consistently, or you could face a Fair Housing issue. Credit score is objective, and color blind. You should also do some analysis on credit scores and the incidents of insurance claims. Lower score people have a higher probability of an insurance claim. If you have a kitchen fire, that is a chargeable claim, and you could lose your coverage, or get higher rates. Therefore, lower credit scores have a tendency to reduce profitability. It is so easy to avoid most horror stories. I would rather use credit score, than criminal records or rental history.
Eric D., over 10 years ago
Another thought is this. The delinquency rate is showing the overall likelihood that people in different FICO credit score ranges will end up becoming delinquent on a loan. Whether or not that correlates to rent, and if the delinquency rate is higher or lower, I can't say. But, it is my assumption that a rental is easier to walk away from than a mortgage. In a mortgage, you generally have some equity, and maybe even some sentimental value. In a rental, you have a deposit, most of which you are probably not getting back once you miss a rent payment. I have some posts on my blog that use some math, and the delinquency rates to predict profitability of a renter. It's all theory, but should correlate. Credit score is the easiest indicator to get for a renter. Use it. Higher risk tenants demand higher rents.
Eric D., over 10 years ago