Should We Throw the Credit Score in the Trash?

I finally decided to get out of the Analysis Paralysis phase and buy my first investment triplex after 6 months of looking around in the highly competitive Greater Boston area.

Now time to rent it out!

As much as I was strained for money and as much as I wanted to rent out my units ASAP, I decided to go really s-l-o-w on this one.  I developed a very extensive application process that includes:

• Prequalifying applicants over the phone asking them basic questions (salary, references available, credit score, any criminal history, etc) – that came shortly after I wasted a lot of time waiting at open houses with no one showing up or receiving applications that are below my standards.
• Interviewing applicants extensively where I get to ask a LOT of questions  (in a friendly conversational manner of course) and gauge how interested they actually are in the unit.
• Application that consists of a credit check, background check, landlord check, employer check, Googling their name and see what I can find, the rent should be at or below 25% of their income, etc.
• First, Last, and Security deposit although that scares away many potential applicants, I only need the ones who can afford staying with me. This gives me a buffer in case we ever go to court. This also keep the tenants in check.

With all these steps, I have had some people that gave me a really good vibe but have automatically turned them down because of their low credit scores. I didn’t hesitate and rejected their application without letting my ‘need for immediate cash to cover my expenses’ variable affect me.

And then I came across Mr. X.    Mr. X walked in to a showing with his wife and his cousin who claimed to be his landlord (first red flag). They expressed how much they liked the unit and were ready to fill an application on the spot and pay in cash (second red flag).    As we started filling the application (which was a hard task because Mr. X did not speak any English), Mr. X wrote his cousin’s name as his current landlord because that’s where he was staying at since he immigrated to the US. Mr. X gladly provided all the pay-stubs that I asked for as well as his social security number. When I called his supervisor the next day, he said that Mr. X was one of the best employees he’s ever had. His credit score was a whopping 804 !!!  His background check came out clean. I guess at this point, I can only accept his application and start paying back the expenses that I incurred on renovating the unit (yes I did use my credit cards).

The reality

NOT SO FAST! Something just didn’t add up for me. I could not comprehend how someone who cannot speak English and who recently came to the US has such a high a credit score!!! Being an immigrant myself who paid all credit card bills on time,  used every trick in the book to increase my credit score, and earning a high salary, my score wasn’t that high - simply because - I have not lived in the country long enough. His name and address on file did match the application, so out of curiosity, I decided to do a reverse lookup on the address to verify that his cousin was indeed the landlord.  And… He was not!  Interesting… So I called the actual home owner where Mr. X resided and explained to her the situation and that I am trying to verify if he would be a good tenant. The landlord started by saying that he’s a good tenant and that he pays on time… you know the usual stuff, but something in the her tone wasn’t right. So when I asked the golden question “Why is he leaving then?”. The landlord paused, and I guess her conscious forced her to just snap out of it and tell the truth. “He is being evicted. He never pays on time. He pays half the rent and screams back at me telling me that I am lucky I am getting paid this much. He claimed he had a wife and a family but it’s really him and his buddies sharing the rent. He’s very impolite and I cannot wait for him to leave, etc…..” That was all I needed to hear. Application Denied: You did not pass our qualification requirements. No need to say more.

I was lucky as this landlord could have easily claimed that the tenant was perfect and kicked the can to my playground and had me deal with it.  I am truly grateful to her...

Current Tenants

A few days later, I get a bunch of international girls that were interested in the room. They said they were flexible with the move in date because they had an arrangement with their landlord that they can stay until they find a unit but the only issue was that THEY DON’T HAVE A CREDIT SCORE. They get paid in cash and wanted to pay rent in cash as well (that’s another topic by itself). One of them did have a social security but when I ran it, it was (-1) - I bet you have never seen that before ;). I am assuming it was 0 and when I ran it, it became negative. Oops!    

Long story short, I told them I needed some time to think about it. They seemed like great people and gave me a good vibe.  At the end of the day, I had to request that they bring a cosigner on board with solid credit. And they did.  When I called their employers and references, there was nothing fishy. Application Accepted!

They’ve been with me for a few months now, not a single problem with them. They always pay on time and I can’t ask for better tenants.

This is my first post ever and I am by no far a savvy investor (YET) compared to the rock-stars on this forum. So please, any constructive feedback is always appreciated.