Someone I know (31 y/o) was just turned away from a rental property because she hasn't established enough credit in her adult life.
Background: This woman comes from a lot of money. Her father has done very well, and for her entire adult life has paid her way. He's given her a car paid with cash, signed & paid for for her apartments through grad school, and always given her direct deposited funds for living expenses. Now, she works as a nurse, making $50k a year for the past 12 mos and recently applied for an apartment rental. She was declined for poor (almost non-existent credit). Also, she has one unpaid medical bill from the past 18 mos that father was going to pay & forgot. It went to collections.
The father then offered to co-sign for his daughter, but it turns out HE has a low credit score. He has paid cash for all houses and cars since around 1997. Since he just started working as an independant contractor after a 15yr work-hiatus, he had to provide a bank statement to landlord as proof of available funds -- and did so, with a statement showing over $500,000 liquid cash in just one instituation. However, the father has a bad credit score, too. Why? Well, He recently short-sold a $4million vacation home in the past year, and also hasn't used credit in over 20 years due to having means. However, he is terrible at paying bills on time (because he lets mail pile up for weeks on end & and one time even had his electricity get shut off on his 7,000 square foot beach house ....because he didn't pay the bill on time.)
Despite the father's proof of cash though, the landlord rejected her application.
Mind you -- the woman now has a steady job & income. And she has no criminal history. And has never been late with payments when she's rented other places.
My question is...WWYD? Do you deny rentals to wealthy young adults who might have unestablished credit histories? Just wondering if wealth ever trumps poor or non-existant credit in any scenerio. (Trust me, I know wealthy tenants can still be awful tenants....just curious if this landlord's no-excuses credit requirements are standard practice in some areas).
Larger deposit, first and last payments and perhaps review of alternative credit such as utilities, insurance, and Verification of Rent from former landlords with payment verification.
The other option I suppose is to have Daddy Warbucks just pay the entire rental balance upfront. Obviously, the contract would need a little tweaking to accommodate such things but that is not all that hard. Rent is paid in advance on a monthly basis anyway.
I would be less apt to approve a young lady living on daddy's money. They tend to destroy the property, because they just haven't developed the work ethic that someone from less privileged means would have.
Does that mean I would decline her outright? Maybe, maybe not. But if I had one unit available and multiple applications, I would steer away from someone like this.
No offense intended to your friend.
Well, if that landlord's application criteria include having a credit score above "x" then they were right to apply it, because they really are supposed to apply the criteria equally to all applicants.
I think a set of criteria with discretion to disregard one in the face of other factors is a better setup. For instance: good credit, good income, reserves, references. If you've got an applicant with all four, they're in. If you can't find an applicant with all four but have one that has three that are very strong, then that could be enough to qualify.
It is an interesting scenario though, and must have been quite a shock for the young lady (what? being rich isn't enough?)
I was surprised to learn that my own parents didn't have a very good credit score. They were of fairly modest means but owned their house outright, never got a car loan, and had two credit cards that they paid every month for decades.
Jean Bolger, 33 Zen Lane | http://www.solidrealestateadvice.com
The biggest criteria for me is the ability to pay on time. It does't matter how much money you have thats important. It is the ability to sit down and make the payment by the 1st of the month. As a small property owner I am dependent on getting a check in a timely manor. As you stated the father routinely lets payments slip. Not good for me.
I will say the screening process for rentals depends on the specific landlord or property management company and therefore is different in every area. For instance, in my rental I not only check their credit, but also previous evictions, background, references, income, etc. I think credit scores and credit reports don't quite accurately measure one's financial position. I know wealthy people with bad credit scores and broke people with good credit scores. In my opinion good income a.k.a. incoming money (doesn't matter if it's from a job, daddy's monthly allowance, investment income) is more important than a good credit score. Also, no previous evictions is better than good credit. My current tenant doesn't have a job, her ex-hubby gives her money and she's been paying rent on time every time and she's an excellent tenant. Just because you have a JOB doesn't mean you have a guarantee stream of income. You can get laid off anytime. Also, if you have a JOB and you are a renter is likely you are just even living paycheck to paycheck like most people. Scary situation, I much rather have a tenant with no JOB and a wealthy family with tons of money. Requiring a larger deposit and the first 3-6months of rent in advance can be smart. I think the landlord is either being to picky or just to strict with its own methods of approving tenants.
What on earth does work ethic has to do with not being able to take care of a property? Two very different things. Just because you have a job doesn't make you a better person. Taking care of someone else's property has to do more with having the value of respect and good manners that it has to do with work ethic. In fact, people with money usually like to live well and to have a nice well-taken-care-of living space, and if they happen to destroy it they have the money to pay for all the damages.
We follow our established rental criteria. Our criteria allows for situations such as this. If no established credit, no problem, as I'm not loaning money. If a weak credit history, clean up outstanding debt and pay extra security deposit. If a bad credit history, no go. Daddy's credit history is of no concern to me, as we don't accept co-signers. If she has 3x rent in verifiable income of at least one year, I'm okay with that. Good job, good rental history... that's great and more important to me. Everyone needs to start somewhere. To cover my risk, I would ask for additional security deposit. If she met our minimum criteria to rent in all aspects, I would offer to rent. I would teach her how to be a good tenant with a good rental agreement and swift enforcement of any violations. Sounds like the landlord passed on a potentially good tenant.
Marcia Maynard, Fischer Properties | Podcast Guest on Show #83
I would probably deny this tenant as well.
The father has the means, but forgets to pay the bills.
I picture the relationship going south after rent is late and late fees are charged. This leaves me (landlord) dealing with a P.O'd tenant who's father has all the means in the world to hire an attorney to make my life miserable.
This is when large deposits (why not ask for first, last and double security) and automatic payments work. If she's held a banking account for awhile, there are many automated payment systems to help her keep on track with this. And get daddy's guarantee or get him to pay the whole rent up front, and he can collect from daughter. Why throw away a good paying tenant when you can just work with their weakness.
I know a billionaire (honest to God!) that has poor credit because he pays cash for everything. One of these days we'll see that credit worthiness, at least in the eyes of credit bureaus, isn't that accurate for some people. Who said mortgage-backed securities were AAA investments and rated them highly?
Where there is money your motto should be, "Let's figure out how this can work for both of us."
Divina K. Westerfield, Esq.
Most new landlords will listen to Guru's talk about check credit scores, which means nothing at all. Look at over-all credit and the main thing is eviction, criminal history and income.
This scenario does not sound at all unusual, I wonder why you think this practice is out of the ordinary? Lots of interesting responses above and it depends on the landlord, the tenant, and other factors such as the state. In MA there are limits on the security deposit, so a double deposit cannot be taken. I think it is legal to take first, last and a security deposit but I am not sure.
I have not checked a credit score on anyone (nor background check, etc) in the past several years and have also rented to people without credit. I've gotten very good at screening prospective tenants and only once had a problem with a tenant who did not pay the utilities for 1-2 months, which I learned from. I also tend to turn away the majority of applicants, most of whom would probably be okay. I do plan on adding credit score as a tool in the arsenal. In this case I would need more information to make a decision, but would probably accept her as a tenant.
Also, based on the information you've given, the tenant was not rejected based on lack of credit, the tenant was rejected due to poor credit (the unpaid bill that went to collections).
You really cant do anything. I am sure there are plenty of landlords willing to work with that situation, especially w/ some of the things mentioned above- co-signer, extra deposits as the state allows. Also, member could look at ways to build credit
Just because someone doesn't have credit good or bad to do not mean they want to pay their rent on time.
We have established rental requirements and try to work with people as much as possible. My husband was a new ensign and had no credit due to no debt. So I understand where she is coming from!
I personally do not consider her to be "high income". Based on my 3x rent amount the max amount she would qualify for $1,388 on her own. Her father would concern as having money is only helpful if he pays his bills! He does not have a track record of paying on time.
Therefore if she is competing in a "hot" market she might have alot of trouble getting qualified. There are going to be a lot of other candidates that meet the "rules" with no considerations needed! In that case the landlord is going to see no need to "compromise" and go with a potentially problematic tenant.
Originally posted by @Donald M.:
This scenario does not sound at all unusual, I wonder why you think this practice is out of the ordinary?
It's not that I thought it was so out of the ordinary, I just wanted to hear other landlords talk through their processes and criteria -- as I'm always interested to hear what property owners would do in a situation that isn't so black & white.
As I gathered from the responses, everyone has their own take on the situation, and it's interesting to me to see the different variations on what one would accept, tolerate, handle, etc.
To the poster who said tenants with means would be more likely to destroy a rental -- I can tell you in this case, it's is quite true. While 31 y/o has never been evicted, she has smoked in rentals and had a pet who destroyed carpets to the point that damages ate entire deposites. But never had anything to the point of being kicked out. However, I don't think current prospective landlord was privy to that info, as her previous rentals were more than 3+ years ago and in another state (my guess is, she didn't use those as references).
Having myself been a victim of 'in the box thinking' , I make it a point to look at the overall situation of a tenant.
In this case I would stipulate high late fees, which a tenant shouldn't balk about, because of course they don't ever mean to be late - right? And if they're late, I look at it as extra rent. If they overall have the money and I can routinely get a bonus above standard market rent, then I'm not unhappy.
Personally, I've just had the problem when I moved to the LA area. Being self-employed and owning a dog I simply didn't fit into the proverbial box, that owners and PMs like to check up. They simply would not respond at all.
One property they said to 'propose dog' and I proved to them that I made 10x the monthly rent. I paid application fee, but could not get a commitment. 2 months later the property is still vacant. Some owners just want what they want and can't look beyond that and some of them will cut off their nose to spit their face.
I ended up finding a 'for rent by owner', who let me move in within 3 days. He was happy that I make a lot of money and have 100K in the bank. And the fact that I'm a landlord myself and have lived in my own houses is a good thing in his opinion, while the 'in the box thinkers' only worry that I don't have a big number of landlord references and don't have a ton of credit, because I have no credit and bought everything with cash and own 100%.
This is a great question @Kris Taylor personally, I would reject them as well because of no track record. I don't care how much money you make; I know plenty of people that make a lot of money that don't pay their bills. Extra sec deposit? Forget it! The people that ask for that never really experienced a turnover then. An extra months rent just covers the commish to pay the realtor; you still need to account for wear and tear, down time, possible repairs if any, etc. and we're not even considering the cost of eviction yet... Good luck to your friend.
Like @Marcia Maynard , I am most concerned with current, verifiable income. The other factors in this case are easily explainable and not deal-breakers in light of her having a job with good income.
Being a landlord is a lot like being a boss.
Your underlings have to fear you a bit.
This applicant did not have no credit or insufficient credit. She had bad credit. She had a collection on her credit. Who cares about Daddy? This young woman's credit was pulled and it was bad with a collection on it. So, it makes perfect sense that she was denied.
Now, if you were screening a tenant, and this was the credit report you got, would you care if the applicant said, "But my daddy said he'd pay that bill that was in my name!"
And she never got one notice saying the bill was going to collections?
Any landlord who rents to this hot mess deserves what he/she gets, LOL.
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