Potential tenant cannot pay deposit in full

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Potential tenant cannot pay deposit in full

Elizaveta Dolzhenko
Investor · Tampa, FL · Member since 2014 · 7 posts · 3 votes

Hi,

My husband and I are trying to rent out our first property and we came across a potential tenant who would like to pay deposit over the first two months - first half along with first months rent prior to moving in and second half with the second months rent. They are claiming that the place they live in now did not require a deposit, and they still need to pay rent there for this month and this is the reason they don't have enough money for the full deposit upfront.

Is this an immediate red flag or should we consider this tenant if their credit and income looks good?

Thank you,

Lisa

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Steve Babiak
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
12y

I say the potential is lacking. No keys without all up-front money paid in cash or money order or certified funds.

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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    12y

    Personally, if they had good credit and income I would do it. When I was a renter I moved into a place that had a 1.5 month deposit and my current place did not have one. I split the deposit over 2 months and lived there for 5 years.

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    0Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    12y

    I say the potential is lacking. No keys without all up-front money paid in cash or money order or certified funds.

    4Reply
  • Elizaveta Dolzhenko
    OP
    Investor · Tampa, FL · Member since 2014 · 7 posts · 3 votes
    12y

    Thank you for your feedback.

    I think we'll go the safer route and wait for someone who is able to pay everything upfront.

    1Reply
  • Chris Adams
    Contractor · Valparaiso , IN · Member since 2013 · 604 posts · 327 votes
    12y

    I require 1st/last and 1 month sec dep, if the tenant has good credit and solid employment I will let them make the sec dep over a few months. 3 months up front can be tough on renters.

    I try not to make a habit of this tho. I have not had any problems yet.

    0Reply
  • Kassandra T.
    Real Estate Professional · Anchorage Area & Vancouver WA · Member since 2010 · 72 posts · 37 votes
    12y

    Good Day,

    I have a few points that you'll want to consider as the answer to this question all depends on your business, market, and risk tolerance.

    -What is the market? - Some markets the upfront cash is one month, last month, and the deposit. If this is the case in your market, then this is a red flag. If it is normal- then it is a grey question.

    -Type of property? If this is a low end property, it is not uncommon to find multiple tenants that ask this very question. It is recommended to obtain the full amount as the risk of issues are reduced. If this is an upper end unit, then the risk is lower, depending on their background.

    -What is your risk tolerance? Depending on the type of experience and savings you have will determine your risk tolerance. If you have little room (financial and with your time) to help balance a possible risky tenant, then follow the rules and wait for the best tenant and you won't regret it. If your risk tolerance is higher, then this might be an acceptable risk level for you and maybe you can charge more in rent/fees for the inconvenience.

    -What is your "company policy"? Do you have proper wording in your lease to ever collect the other half? Can you evict for not collecting the other half? In Alaska and Oklahoma, If they don't pay the other half of a deposit, I have a REALLY difficult time trying to collect, and not to mention the stress.

    -Can you counter their offer? You can do other options such as should you charge as a rent or as a deposit for the final payment so you can evict for non-payment? Should you ask for a non-refundable fee for doing a payment plan?

    -Has the background been pulled? Read the story. Does the story make since? Did the prior landlord say it was true? Why would a landlord let someone move in without a deposit anyways?

    -Immediate Gratifications- There are a lot of tenants now that rush rush rush...and they want it NOW and don't know how to wait. Those tenants can be bad cause they will rush and spend their money and forget to pay rent or utilities. So if they show signs of rushing to move prior to saving up their full amount....Then they might be a "Rush" Tenant.

    I hope this helps!

    Kassandra Taggart

    1Reply
  • Sam K.
    Milwaukee, WI · Member since 2014 · 21 posts · 12 votes
    12y
    As painful it is to have a property sitting empty it is even more painful to evict, clean and remarket. This is the first sign of a financially weak tenant. Recommend to move on without spending anymore time or thought.
    3Reply
  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    12y

    ok so my thoughts when I hear this are always if you knew you were planning to move and you can't save up the deposit how will you plan for paying the rent? I understand this may happen unexpected for some people but that is not the person normally asking. I am glad you are going to wait for a qualified tenant.

    1Reply
  • Larry K.
    Investor and Architect · Ramsey, NJ · Member since 2010 · 305 posts · 84 votes
    12y

    I would not do it. You'll put yourself in position of being a beggar. You dont want to make their problem your problem. You want someone who has handled their finances in such a way to have the deposit money on hand.

    1Reply
  • Jarrett Harris
    Calumet City, IL · Member since 2014 · 312 posts · 49 votes
    12y

    Yes wait for the qualified tenants. I am going through an eviction with an inherited tenant, that does not have a security deposit, right now......... NOT FUN!

    0Reply
  • Patrick L.
    Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
    12y

    This is a big red flag for me. If they don't have the financial ability to come up with the full move in money then at some point while they live there you will run into a month when they don't have the ability to pay the rent. Just pass on them and wait for a more qualified tenant.

    0Reply
  • Rolanda Eldridge
    Investor/Realtor · Hoover, AL · Member since 2010 · 1k+ posts · 459 votes
    12y

    @Elizaveta Dolzhenko ...I would not consider on first property..Too risky..Be patient and wait for most qualified...Sometimes I consider if it's a difficult property(2 BR) or marketing for more than 30 days..

    0Reply
  • Elizaveta Dolzhenko
    OP
    Investor · Tampa, FL · Member since 2014 · 7 posts · 3 votes
    12y

    Thank you very much for all your advice. My husband and I have a lot to learn, so your advice is greatly appreciated.

    We'll be patient and wait for the right tenant.

    1Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    12y

    I've done it. Don't. One full months rent plus the full security deposit in cash or money order. ONLY! They give you the money, you give them the keys. Both of you sign a lease. Done deal.

    3Reply
  • Mark LangdonPro Member
    Investor · Whippany, NJ · Member since 2010 · 356 posts · 104 votes
    12y

    Don't do it. I never rush to rent it if they don't meet the requirements. Wait for the right qualified person even if it sits empty.

    [email protected]973-464-3839
    0Reply
  • Michael Jobe
    Real Estate Broker · Triangle Area, NC · Member since 2012 · 587 posts · 214 votes
    12y

    @Elizaveta Dolzhenko I'm not sure if it's the same in Tampa as it is down in Miami/Ft. Lauderdale/West Palm but based on my experience the majority of rental properties require first & last month's rent plus a security deposit. I dealt with a client who wanted to negotiate a staggered security deposit to coincide with their pay day, which the landlord was fine with because of their credit, income & references. In your situation I believe it's a red flag of some potential instability with their finances if they can't come up with just one month plus the full security deposit.

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    12y

    Eject, eject! Big red flag. I have first-hand experience with tenants who weren't financially qualified to be in the house (a big thanks to property managers not being strict about it). It ended in expensive disasters every time.

    It'd be another thing if they were the only applicants you had and they had proven income with a steady job, I miiiiight consider it then. But otherwise, no way. Trust me, I know first-hand when I tell you it can get expensive with a lot of headaches.

    0Reply
  • Aly W.
    Investor · Middletown, NJ · Member since 2008 · 2k+ posts · 1k+ votes
    12y

    We have condos in Florida, and the norm in Broward County is first/last/security deposit. We only charge a security deposit and first month, but the deposit is about 1.5 month's rent. I screen applicants over the phone and ask if they have the entire move-in amount before they can see the property. If not, or if one of their first questions is if can they pay the deposit in installments, we don't show the property.

    If a tenant starts off their tenancy by owing you money, it does not bode well for timely rent payments.

    0Reply
  • Atul Mohlajee
    Oak Park, IL · Member since 2014 · 285 posts · 114 votes
    12y

    I made this mistake when I bought a multifamily which needed work. But previous owner recommended ex sister in law who came in with first month rent and no security. I took her as a tenant and she paid security with in 2 months. So far eight months gone by but lot of late rents. Gladly it was a month to month lease, I raised rent and late fee both. I did this to save myself from investing 10000 in updates as she was ready to take it as is. I would recommend waiting though.

    0Reply
  • Account Closed
    Property Manager · Atlanta, GA · Member since 2013 · 13 posts · 2 votes
    12y

    I agree in the real world people are on strict budgets which account for rent, car payments, utilities, and food. So the likelihood that they are able to come up with a substancial deposit along with their first months rent is very slim. If they have excellent rental history, stable employment, and everything else checks out I would not risk losing a great tenant over an pre-arrnagment of the escrow deposit.

    0Reply
  • Nicole A.Pro Member
    Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
    12y

    @Elizaveta Dolzhenko Like most said, I'd wait for another applicant. This is the time of year that you'll probably get another applicant very soon anyway.

    Also, like Jon said, when they pay the first month rent and security deposit, make sure it is **only** in cash or money order. Do not accept personal checks for that initial payment!

    Good luck!

    0Reply
  • Michael Lauther
    Investor · Hampton Bays, NY · Member since 2009 · 907 posts · 258 votes
    12y

    @Elizaveta Dolzhenko

    I have done this and it has ended badly in most cases. If you are in a rental market that is low end with a high crime rate, the risk of having your plumbing and electric ripped out of a vacant property may exceed the cost of evicting a tenant. Your cushion of a security deposit gives you one month of leeway and of course you still have to consider cleanup of property before renting.

    0Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    12y
    Originally posted by @Account Closed:
    I agree in the real world people are on strict budgets which account for rent, car payments, utilities, and food. So the likelihood that they are able to come up with a substancial deposit along with their first months rent is very slim. If they have excellent rental history, stable employment, and everything else checks out I would not risk losing a great tenant over an pre-arrnagment of the escrow deposit.

    Sorry, @Account Closed this may have worked out for you, but I'll never do it again. If someone knows they're moving they need to plan ahead to save up the deposit. Further, if they're spending every penny they bring in on day to day expenses, they will have a crisis every time anything come up. Car needs repairs? Kids need school clothes? Sorry, Mr. Landlord, we're a little short this month, can you work with us?

    1Reply
  • Account Closed
    Property Manager · Atlanta, GA · Member since 2013 · 13 posts · 2 votes
    12y

    I am sure they will make the best decision, clearly reading the panel replies both options were discussed, no wrong or right .... I have witnessesd both sides of the coin.....it's something for the landlord to consider based upon their market, and comps. ..especially since the higher leasing season never dictates quality of traffic. Either way I do wish them well in their decision and hope the feedback we were able to provide was helpful. Thanks Jon.

    0Reply
  • Aly W.
    Investor · Middletown, NJ · Member since 2008 · 2k+ posts · 1k+ votes
    12y

    Jon is correct about a tenant knowing they will be moving and knowing a security deposit is required. A responsible tenant will have it and not ask you to fund it. They can borrow it from friends/family. I have 2 rentals in a low-end area, and the tenants never have their own money for the security deposit, but they know exactly how to obtain it through social services or their church group.

    I've also experienced what @Michael Lauther described, and understand that kind of anxiety.

    0Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    12y
    Originally posted by @Account Closed:
    I am sure they will make the best decision, clearly reading the panel replies both options were discussed, no wrong or right ....

    No right or wrong maybe, but there is definitely better and worse - and to let a tenant in without all up-front money paid in full is definitely WORSE. Before they can make that installment payment for the deposit, they could have already trashed the place and even took off after doing so.

    If you have 25 years experience, maybe you have an inkling for when to take a chance. But to advise somebody who is new to take that chance ... I can't consider that to be good advice.

    1Reply
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