Tenant Choice

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Tenant Choice

Dave Mustaine
Aurora, IL · Member since 2014 · 45 posts · 1 vote

This is a hypothetical question based on a decision I will likely need to make.  If you had to chose and approve one of these tenants, which one would it be?

Assume both renters have the same amount of income, assets, liabilities, and same credit score. The renters incomes cannot be garnished,

Renter 1. 100k mortgage with 1k monthly payment includes taxes and insurance,     Stopped paying mortgage for a year and is in forclosure. 100k credit cards pays 1k per month on time.  Pays all non housing bills on time   

Renter 2. 100k mortgage with 1k monthly pmt, which he pays in full on time, 100k credit cards with 1k monthly payment, stopped paying credit cards several months ago. Assume credit card balance is growing only at same rate as mortgage in default on renter 1.  Pays mortgage and all other non credit card bills.  

In sum, assuming all else is equal.  If you had to end to one of them would you rather rent to someone who defaults on their mortgage with forclosure or defaults on their credit cards.  Thx. 

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Angela Henderson
Investor · Blackwood, NJ · Member since 2014 · 52 posts · 14 votes
11y

I  would recommend that you keep your home and pay your mortgage. I was in a similar situation. I'm still underwater for 30k+ and was barely making it with 50K in cc debt. I entered a debt management plan over a year ago and my credit score is slowly improving and my cc debt is now down to 37k. It's hard but can be done with lifestyle changes. I also just purchased my 1st rental property (with cash) so all things are really possible. It will be tight, but there is light at the end of the tunnel and if you stick it out with the cc mess, like me, I'm sure you'll never use credit cards the same way. My credit score is now high enough to qualify for a mortgage so I'm hopeful that with 100%equity in property #1, that I can get financing for property #2. Good luck and make wise choice. 

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  • David Roberts
    Brownstown, MI · Member since 2014 · 344 posts · 98 votes
    11y

    I'm suggesting selling your house, putting 30k into the sale to clear yourself of a bad mortgage, and then you would have approx 70k left.  That buys you quite a bit of time, maybe a couple of years, to find a better paying job or take on 2 jobs, and lower your living expenses wherever possible.

    That, or get out of the mortgage as I stated and then default on the credit cards.  It'll go to collections, they'll work with you on a payment plan while the juice is NOT running, and likely you can talk them into taking half or less than half if you send them one big payment.  

    My sister got into a lot of credit card trouble and I helped her that way.  THey were all in collections before she came to me for help.  We called each one, and most of them were more than willing to take small payments for a couple months and then take 30-40% of the total due as a balloon payment and forgive the rest.  

    She was about 30k in debt across 5 charge/credit cards.  Got out of it by paying less than half in total.  She never had to pay the difference on her income either like I hear they can make you do if the amount forgiven is over 600.  But even if they did, she still gets out dirt cheap.

    Can't imagine you're sleeping well at night.  This kind of thing would leave me sleepless. Debt sucks when it works against you.

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  • Dave Mustaine
    OP
    Aurora, IL · Member since 2014 · 45 posts · 1 vote
    11y

    As previously mentioned, I am on Social Security Disability and can't work.  I am limited to the 22k per year, and I will need every penny of that to live and then some.  I would not be able to get out of the credit card situation which would be growing at 20% plus.  

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  • David Roberts
    Brownstown, MI · Member since 2014 · 344 posts · 98 votes
    11y

    Sorry to hear that things went south for you.  MIssed that part of your posts also lol.  Sorry about that.

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  • Michele FischerPro Member
    Rental Property Investor · Seattle, WA · Member since 2013 · 2k+ posts · 1k+ votes
    11y

    As a landlord renting in the low income market, I would give you points for having a stable verifiable income, this is a big plus.  I would take away the same amount of points if you had a bankruptcy or foreclosure or if you had over $2K in debt in collections, so that is a wash, but try to avoid having both.  We like renting to prior homeowners, it shows that they are stable and can take care of a property.  I also look at factors such as how long you've lived in the community, how long you've stayed at prior addresses, how long you intend to stay (two years or more gets preference, turnover is expensive) and your Facebook presence.  Hope this helps.

    Podcast Guest on Show #79
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  • Rob K.
    Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes
    11y

    I got a little confused between the hypothetical and actual. How much is your house worth and how much do you owe on it?

    From what you're describing, it sounds pretty bleak. Do you have a chance to get off disablilty in the future and start earning again? Are you going to school to get a new skill?

    With what little information I have here, it's hard to say. Would your $80K cash pay off your mortgage? 

    I think that whatever you do, you're going to want to rent from a mom and pop type landlord where you can "sell them on you" instead of a corporate apartment that will look at your credit and deny you. You're going to want to rent something cheap - like $600-800 per month.

    Have you thought about using some of your Megadeth royalties to pay off this mess? 

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  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    11y
    Originally posted by @Rob K.:

    ...

    Have you thought about using some of your Megadeth royalties to pay off this mess? 

    LOL :)

    http://en.wikipedia.org/wiki/Dave_Mustaine

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