Investor · Mission Viejo, CA · Member since 2013 · 48 posts · 14 votes
Hi,
I have a tenant that I am screening for a SFR property that I have in Dallas, Tx and wanted to get the input of the community of whether they would rent, or not rent, or have recommendations on things to check further.
I went through Brandon's tenant screening guide and am not sure.
The applicant makes $5300/month. The rent that I am asking is $1395 (so income is 3x rent, check). The problem is that the applicant owns a barbershop (since 2010) and the income is not verifiable via a paystub. The tenant has been living with family for the last year so he doesn't have any landlord references. He has a clean background (no criminal activity) and no evictions came up on the credit/background search. His credit score is pretty low (520 or so) and it looks like its because he doesn't have any credit history (no loans, credit cards, etc). He is willing to offer 2x the security deposit and has about $8K in his bank account.
It seems high risk, but wanted to see what others think.
Investor · Middletown, NJ · Member since 2008 · 2k+ posts · 1k+ votes
12y
I don't bother with credit scores. I want to see if there are evictions, eviction filings, or judgments. Obviously I do check for criminal activity and I always verify previous landlords if there are any. I have a young tenant now that has always lived with family, and her husband just got a new job. The primary tenant is a full time student with a stipend and a somewhat guaranteed job when she graduates at year's end. They paid an extra security deposit, and for the 5 months they've been there, so far they've been exemplary.
As @Debbie Mailloux said, get a copy of his tax return to verify income and ownership of the barbershop. Where did this tenant live before the last year with his parents?
No tenant is a sure bet, you just do your best to mitigate the risk. Are there any other applicants?
Liverpool, NY · Member since 2014 · 6 posts · 0 votes
12y
Hi Dean,
You can ask him for his business tax papers, that will tell you how much he makes. I've rented to a few residents in the same situation (live home with mom and Dad and really have no credit) They've ended up being very good tenants.
The thing with renting, no one is a sure fire bet. You really never know until they move in. I've rented to nurses, lawyers etc.. and some end up being the worse residents even with Landlord references.
Rental Property Investor · Chandler, AZ · Member since 2012 · 87 posts · 39 votes
12y
I would ask for his last 2 years personal and business tax returns (they may be one in the same depending on the business entity type), and also his business income statement and balance sheet for those years.
I only had one applicant similar to this, and previous tax returns showed less than half what she said she was making, and then when she provided "current financial statements" to back up that she's doing better now - it consisted of a piece of paper with "Income" written at the top, months down the side, and a dollar amount. I passed.
Not everyone is an accountant, sure, but a legitimate business should be able to provide those things without any issue.
Investor · Middletown, NJ · Member since 2008 · 2k+ posts · 1k+ votes
12y
I don't bother with credit scores. I want to see if there are evictions, eviction filings, or judgments. Obviously I do check for criminal activity and I always verify previous landlords if there are any. I have a young tenant now that has always lived with family, and her husband just got a new job. The primary tenant is a full time student with a stipend and a somewhat guaranteed job when she graduates at year's end. They paid an extra security deposit, and for the 5 months they've been there, so far they've been exemplary.
As @Debbie Mailloux said, get a copy of his tax return to verify income and ownership of the barbershop. Where did this tenant live before the last year with his parents?
No tenant is a sure bet, you just do your best to mitigate the risk. Are there any other applicants?
I don't bother with credit scores. I want to see if there are evictions, eviction filings, or judgments. Obviously I do check for criminal activity and I always verify previous landlords if there are any. I have a young tenant now that has always lived with family, and her husband just got a new job. The primary tenant is a full time student with a stipend and a somewhat guaranteed job when she graduates at year's end. They paid an extra security deposit, and for the 5 months they've been there, so far they've been exemplary.
As @Debbie Mailloux said, get a copy of his tax return to verify income and ownership of the barbershop. Where did this tenant live before the last year with his parents?
No tenant is a sure bet, you just do your best to mitigate the risk. Are there any other applicants?
On the credit score I look for specific things, like a car being repossessed, delinquent utility or phone bill. I do look for judgments and evictions of course, however I don't look at school loans or medical bills.
You are correct, you NEVER know how a tenant is going to be until they move in.
I'm pretty close to what you look for, although I definitely look at student loans and if they're behind. If the loans are backed by the gov't, they have a lot of power to garnish wages or simply empty a bank account, greatly impacting the ability of the tenant to pay rent.
Investor · Vancouver, WA · Member since 2013 · 3k+ posts · 4k+ votes
12y
Do you have any "feet on the ground", a person in Dallas who can go and check out his barbershop business? Heck, offer to pay for a haircut and see if your prospective tenant is any good at what he does! Chit chat with the other customers while there! Beauty shops and barber shops can be gossip mills, the customers may know more scoop than you could ever find out by other means.
Of course, as the others have said, his income should be verifiable by seeing two years of tax returns, personal and business. Ask for them. There should be professional and business licenses that you could check as well.
If he doesn't have rental history and you feel he is more of a risk because of it, ask for extra security deposit.
Investor · Delaware, OH · Member since 2013 · 224 posts · 64 votes
12y
Dean - have you talked to him personally? Do you have a gut feel for him?
He doesn't sound terribly high risk to me - he has had his own business for several years, money in the bank, no bad credit, no criminal issues, is willing to provide 2x deposit, and has family in the area that is willing to help support him, and take him in if things go awry. Nothing indicates he's missed his obligations.
Ask for the tax returns...but what are you going to do if they are lower income than he says, because he doesn't report all of his tips?
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
12y
Get a copy of the tax return from this applicant, and have the applicant complete IRS form 4506T so that you can get a copy from the IRS to confirm you were given a real (and not altered) copy of the tax return. This is the practice to follow for all applicants who are self-employed or paid using 1099 (rather than W2).
There might be $5300 of monthly income, but is that net income after expenses, or gross income before expenses? If the latter, rent for the business might be say $1500 per month, and then you no longer have that 3X rent of income.
Investor · Superior, WI · Member since 2013 · 51 posts · 4 votes
12y
Check the last two years taxes, for sure. In addition, you can verify the parent's address and if they own the home. This information can be found on your county's tax assessor's website. This is just another means of verifying honesty.