Do you rent to people with bad credit?

Question

Hi guys,

I am not sure what happened to the rental market. All I am getting are people with bad credit. One newly married couple : she had 635 credit, he had a few evictions. The other couple: the guy had an eviction, both have bad credit: 500  and 400.

The last couple said they guys mom had health issues and he quit his job to help her...

Another girl said she has a good credit but did not show up for the showing.

Another tenant, in another state, is breaking the lease and moving out...

I feel like the markets are oversaturated with rentals....  Its used to be 20 showings per rental, now its like 2 showings per rental... And I dont even rent that high.

What is your experience with people with bad credit?

Dan H. · Answer

Having unit empty is better than having a poor tenant.

My units go down to c+ area, but it is a low vacancy area

No evictions, ever.   I do not care about the reason.

Strong LL references.  Paying rent on time does not suffice as a strong reference.

Credit score: this is hard because virtually always it is a multi adult tenant.  If one has poor credit, but the other good credit then we can accept.   Similar with a co-signer.

When things go wrong, there are only a couple things a LL has at their disposal to collect. The security deposit is easy, but you will be challenged in my market to get a tenant out in anywhere close to a month. The other is their credit. If they do not pay, impacting their credit score is the stick. It may not work in all cases, but I guarantee if they have a credit score worth preserving it will work more often than if their credit score is already poor.

I would lower rent before I would lower my tenant qualifications.

Good luck

Allan C. · Answer

@Mary Jay you’ve got all the good feedback that you need, so I’ll share a tactic that i use in todays market. I’m in same situation as you where I used to get top dollar B-class tenants and vacancies filled within a week. However, these past few months I’ve had slow showings and 30+ DOM to rent.

For my last two vacancies I dropped rent 10% below market. I’d rather get more applicants and choose better quality than deal with higher risk. I now see competitor listings at 60+ DOM, so their extra month vacancy already exceeds losses from lower rent…. and they’ll likely settle with a worse tenant.

Play chess, not checkers. Vacancy (either through longer DOM, unpaid rent or evictions) is your biggest enemy. Don’t anchor so much on maximizing rent price.

Tim Baldwin · Answer

Low credit score is just one factor. Eviction and early termination history are big, big warning and for many managers, an automatic no. However, if the applicant only has a low credit score but more than sufficient income, rental history, steady employment, etc., you may consider conditionally approving with a higher security deposit (or alternatively, use an insurance policy - "fee in lieu of deposit"), first and last month's rent. Use good judgment and assess your risks. Best wishes.

Nathan Gesner · Answer

I look at the whole person. Someone could have bad credit, but good landlord references, strong income or employment history, etc.

I score based on a variety of criteria, determine the level of risk, and then charge a higher deposit to offset that risk.

Karolina Powell · Answer

Yes I accept poor/low credit if everything else checks out and they are current on all of their accounts right now.  Thus far it seems to be working out fine.

Theresa Harris · Answer

For a few of them I'd ask follow up questions-ie for the person who broke the lease and is moving-why are they moving?  Sometimes people get a new job in another city and they have to move. Make sure the lease has a penalty for breaking the lease early.

Evictions are much harder, but when were they evicted? Was it 10 years ago when they were 19?

For the guy who quit his job to help his mom....does his partner have the income required to meet your criteria to rent?  Not every couple has both people working.

Melanie P. · Answer

Without a doubt pricing a bit below top of market rents attracts better-qualified applicants. A third of our portfolio is affordable housing. We do not accept people with evictions, period. Even if they paid the eviction and it was dismissed we do not deal with anyone a prior landlord had to sue. Barred for life.

We start asking for near top-of-market rent and notice when we decrease rent 5-10% after the first week or two of marketing that magically the tenants with longer rental histories, no evictions and stable (but not necessarily lucrative) jobs start showing interest in the listing.

Meaghan Lugo · Answer

I have accepted lower credit scores than I would've liked in the past. Both cases were great tenants. I did verify certain things before agreeing, example a couple with low credit were recent immigrants to the country, no bad marks but still building up their credit. Had jobs and reserves in the bank. Prior tenant lost her job and all missed payments were during the same two months before she got on her feet. Spoke to prior landlord and he said she did pay him all rents, though late during that time, but she got back on track. I had a similar experience with tenants not showing up to view despite applications looking good, etc. If you are uncomfortable with the options you have I would wait for better options. Took me six weeks to rent a smaller unit at one point but its worth it for a great tenant who pays on time and has no complaints or issues.

Jason H. · Answer

I am in the same boat and completely agree with you in that the rental market does seem to be changing quite a bit in recent times- much more difficult to get good qualified tenants these days and decent tenants seem to have their pick of the litter - often very flaky and uncommitted because there is so much supply out there.

Rent price is definitely a key issue but what's the more likely outcome of a significant drop in rent price below market? - attracting the wrong type of tenants or actually capturing those with decent credit looking for a deal?

James Hamling · Answer

I see "Debt Bombs" all the time now, with good to really good FICO's so no, it's not accounting for it at all. Maybe it should be, but I am seeing it, at scale, NOT doing that.

Cash-is-King, is it not?

Ok, so if Cash-is-King, that means debt-is-the-devil is it not? Were talking about tenants here, consumer debt, non-asset secured debt.

Here is what I see a LOT of now. Person has a "great" income of near $10k per month. And a debt service of $6k per month.... After everything, there poor, no joke legit poor.     Because yeah, they make a lot, but there spending is equally massive so NET, net is near to nothing monthly.     So if/when anything changes on employment..... Oh-Nelly things will get real ugly real fast.

Hey @Carlos Ptriawan you wanna chime in on how "safe" those at these $10k, $15k, whatever incomes are? The person a few years into whatever tech job, going bonkers on a spending spree because they got $....

Then they get divorced, and want to rent a place from me, and I'm telling em there scary as hell HIGH risk, and they just don't get it, shake there head saying but, but, but they make a ton. yeah, they do, AND they have spent 3 tons. They carry a giant debt load and debt service, there income is HIGH RISK for compression and decline, so no, they scare me.

The auto mechanic, who's now getting divorced, wants to rent a place, had ok credit but nothing amazing and in divorce soon to be ex wife did spending spree so credit is tanked, I LOVE that tenant. Blue-Collar = $$$$ folks.

Mechanic, Electrician, Nurse, CNC Operator, these people are $$$$-Fountains!

Tech = possible train-wreck. That's just the reality. Especially the new-$ folks spending every cent as if there income is guaranteed for life.....

FICO does NOT tell you who is safe or risky in this FUTUREcast.

You have to use your head, do some thinking.

Now if there burger flipping doing nothing to improve themselves, well duh. Someone waiting tables while finishing nursing degree, and had some credit issues, YES, gimmie them, I will happily deal with them, those who give a shat about there lives and are clawing way up. Sure, there may be lates but they will always make things right.

Do you rent to people with bad credit?

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