How to find good tenants for a property in a not-so-good neighborhood

13 Replies

In Southern California, the rental properties that make most financial sense are often in some not-so-good neighborhoods.

I screen applicants by running a credit check, but I have never found anyone with a clean credit history. I've probably run a total of at least 40-50 credit applications (to rent out several units), and the highest FICO scores I've seen are in the mid 600s, and everyone has at least one collection on their record.

This certainly makes sense - if they made a lot of money and had good credit, they wouldn't be living in these neighborhoods.

I often end up overlooking mediocre credit, as long as the applicant has no past evictions. Some of these applicants turn out to be good tenants, but some turn out bad.

Can anyone offer practical advice for screening tenants for low-to-middle class housing?

Thanks,

Mike

what kind of security deposit are you asking them to put down? I would charge the maximum allowable security deposit(cashiers check only) and if they can't come up with it, then your odds of receiving timely payment have dropped pretty reasonably.
do you talk to previous landlords going back beyond the most recent one?
do you talk to their employer?

I work at a company of which 80-90% are on government assistance. Of the 20 or so ppl, 3 or 4 live below their means and are improving their life one paycheck at a time. The rest have spent their money 4 days after they are paid(they are paid every 2 weeks). Low income does not always mean irresponsible, but you will have to do your work to find the few that are solid. Good luck!

Credit scores mean nothing. Look at evictions, criminal history, and income.

Joe Gore

You need to look at more than credit. Job history, landlord references, personal references, and support network. People live near the edge and you can't change that but you can make sure that when they go off they don't take you with them. People who will leave and leave your place in good condition (even when breaking a lease for something like a job loss) is much preferred to those that make you evict them. Start looking for character and reliability in addition to your credit score.

Credit score is almost worthless, for exactly the reason you mention.

Stable employment history, on the other hand, is priceless.

We own 2 SFRs in that kind of neighborhood. No one has good credit, so I don't even bother asking or checking. I do check for evictions, judgments and landlord references. We used to have many more applicants on Section 8 or TRA, and have now had tenants with jobs for the last several years. If their job history is stable, they are at least collectible if evicted. Maybe....

I usually ask for a deposit equal to one month of rent. I don't ask for a last month payment. The law allows two months' rent as security deposit, but that may be too high a bar for applicants Rent is typically around $1500. Would you insist on this high a deposit? Do you typically also ask for last months' rent at move-in?

Most people also don't have their landlord's contact info from two previous landlords ago. That would be the best reference to check, but I don't have the info. Or more likely, they are living with family right now. I don't bother to contact the current landlord - it's a waste of time since they will always give a glowing recommendation of the tenant, even if the tenant is terrible, just to get rid of him.

So would you guys disqualify someone without this information?

It seems in these times, a lot of people are losing their jobs. So even people who had been stable employees aren't able to make their rent payments.

Make the place as nice as you can. Most cops, ooops, law enforcement officers don't get big bucks. See what you really must have, knock some off the market rents. Go to the police station and tell them you'd like to make a special deal for an LEO since you support them as a great upstanding citizen.....well, don't over do it.

Point out, the reason you're cutting rents is two fold, one to give a LEO a good deal, the other is to have a known police presence in the neighborhood. Your other part of the plan is to work with a neighborhood watch and neighbors in bringing property values up. Going with the area improvement mission is something the police dept. can support as well thereby giving good reason to help find a tenant!

You still need to qualify them.

LEOs can be a PITA as a tenant, but not when they are part of a department goal of improving neighborhoods, it becomes a quasi public mission and that officer can be your very best tenant as they know they are there with a purpose!!!

If you are in a questionable type area this can be a great solution and improve an area, it also takes effort on your part too. Treat them like gold, they are as area issues, if any will likely go away.

In the PHA, we put some officers in as tenants and in such arrangements, it was a very successful arrangement. Good luck. :)

Well, our credit score cut off is 600. That seems to be the line between good and bad tenants, with rare exceptions. Perhaps your screening standards are too high for the neighborhood your rental is in.

As others pointed out, though, checking past evictions, landlord references, etc. are also very important.

Make sure the rent does not equal more than 30% of their total income and verify employment.

They don't need to give you previous landlords, all you need is an address. You can do the rest online. I get current, previous and prior addresses. I ask for "manager" contact info but don't always get it. Even if they "lived with family" you can still call them. A good reference doesn't always mean good applicant but bad reference is definitely a stinker. With some practice you can learn to ask open ended questions and then shut up an listen. If the BS meter goes off then you know to take what they say with a grain of salt.

I also ask for current, previous, and prior employment with supervisor's info. They are also more likely to talk candidly about your applicant.

If they have pets get a pet application. No need to charge to process it, check everything out on it. Call all three references.

I have found good tenants take the time to complete the application (mine is 2 pages which I think is the limit). Those that leave things blank get told "I have a vivid imagination and I fill in the blanks with my imagination and it won't be in your favor". Good ones get the idea.

Get creative. I tell applicants that I know more about them than their roommates do when I'm done screening.

Mike, I run credit but not for the score. I look at the debt section to see if they have utilities or collections that cold be a prior landlord. And I check the addresses on the report against the addresses on the application. I deny a lot of applicants for not being truthful on prior addresses. Addresses on the application may not show up if they never applied for anything, but extra addresses are a big red flag not worth even investigating.

Companies that extend credit for second chance auto purchases want to know if a potential purchaser has strong automotive payment history. Companies that extend revolving credit accounts look for strong revolving account payment history.

On rentals, even though I look at the whole picture, a major compensating factor is strong rental history that can be easily verified.

If there is no strong residential payment history, can the lack thereof be offset with more monies upfront?

@Dick Green After a few early years of not collecting enough security deposit up front, we realized to mitigate our risk we would not be shy about asking for substantial security deposits. We make it close to one month's rent, but not exactly the same. We automatically increase it by $200 if there is a significant weakness in credit history, income history, rental history, or legal history. This is if they meet our minimum criteria to rent in the first place and we feel they will prove to be good tenants, even with a an "oops" in their past.

@Mike L. I scour the credit report for payment history and for previous addresses. The credit score not a determining factor. I'm all about looking at the whole package. I try to screen out the "rule breakers" and also need to know the tenant will have enough income to succeed. A support network is key for low income tenants as often they are one paycheck away from being on the street and I'm no social worker.

I like what @Bill S. has to say in both his posts here. It really gets down to effective tenant screening.

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