I am close to the finish line of my first real estate deal. I purchased a HUD home, and spent about $30K fixing it up. It's finally ready to rent, and I put ads on Zillow, Trulia and Craigslist. Lots of response in the first 5 days-probably a dozen inquiries. Today, 3 female students (college town) looked at it with their moms, loved it, and said "we'll take it". First, I asked them to fill out an application, and will require each of the tenants to pay a $35 application fee, to cover background, criminal and credit checks. Each girl said no problem for their parents to co-sign, since they have not established credit yet. Here's my question: what type of background and credit checks do I run, and on who?
I'm thinking to do a background and criminal check on each student (to look for evictions or felonies) and a credit check on the parents, who will be guaranteeing the payment. Also, each of the girls works while going to school.
Any ideas or suggestions. I did not think I should run 6 complete background checks (one on each tenant & one on each parent), as it seems overboard. Am I going about this the right way? Rent is $1,200/month, and I've asked for 1st month, last month, and $600 security deposit.
I would run full credit and background check on all residents. Then I'd get a complete application with income verification from the co-signors but I would not run credit and background on them.
All applicants and co-signers must go through the same screening process and Credit Check. Plain and simple!
Let's say the kids went to a bank to get a loan. But they don't have credit yet. So the bank asks for a co-signer. Parents agree. Do you think the bank wouldn't do a credit check on both the tenant(s) and the co-signer(s)?
The whole idea of having a co-signer, is making sure your investment is protected. That you have someone to sue in case the actual tenant cannot or doesn't pay for rent or does damages. The more people on the lease and the more people who co-sign, assures you of recouping any losses that may entail.
Thank you Dick, and Nancy for the prompt suggestions and advice.
Out of curiosity, who do you use for background and credit checks?
I have to disagree with those previously posting. I would go with your original plan. There are two issues paying which mostly is done by parents and partying which is the students. It is pretty useless to run credit checks on undergrads, in particular if they have never rented. They just don't have history. I don't do it unless they are independent/self supporting. If they have a previous landlord I call them.
I have found for student themselves more information can be found on a google search and the police log search in town then a credit and background check. These are non-felony events that can have a great impact on your house being a party house. So I turn down smokers who don't tell me they smoke (non-smoking house). I give extra points for positive behaviors that I find online (dean list, etc). I ask if they have any issues and if they lie they are out. It is up to you though my house rents only to students as it is a 9 month lease.
Originally posted by @Kevin McGinnis :
I did not think I should run 6 complete background checks (one on each tenant & one on each parent), as it seems overboard. Am I going about this the right way? Rent is $1,200/month, and I've asked for 1st month, last month, and $600 security deposit.
I know it may seem "overboard" but I would make anyone who plans to live in the rental and any cosigner fill out an application as if they're living there. It's fairly standard practice to run a check on anyone living in the home or paying the rent.
I charge an application fee so I can run their information through the tenant background checks offered by http://www.myrental.com. It's rarely been a point of contention and it's only a little extra effort to make sure your bases are covered.
I agree with Nancy. I am a Resident Manager for an apartment complex and we require that every person go through the same process. And co-signer qualifications are different than the renters. A lease holder may be required to make 3x's the rent where a co-signer is required to make 5x's. Reason is because by co-signing for someone they are saying that in the case the lease holder cannot pay the rent they will cover it, along with any of their own expenses. I think that to cover all your bases, screening everyone the same is your best bet. Good Luck!
Thank you your input Colleen, Lisa and Olivia. Everyone on site is providing valuable advise, perspective and information. I also checked out MyRental, which I had not heard about before, and looks like a great resource.
Information like this is why @biggerpockets is the best resource around for investors. I have the same issue with a prospective tenant on a property. I haven't completed the project yet and they saw it and wanted to put in an application. The rent payment would be 50% of their income but they said they have a co-signer, a brother. I have two nearby houses and have no trouble renting them at all, so not sure if I should have them move on. The only reason I'm considering is because they are grad students in a nearby college so were looking for a longer term lease.
Why are you charging less than 1 month's rent for security deposit?
To be honest, I did not have a real good reason for the $600 security deposit, other than that was what another investor in the neighborhood required from his tenants (for a very similar property). He gave me the idea for 1st month's rent + last month's rent + security deposit. I followed his advise.
Also, all co-signors for me lived in the same city as my rental property.
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