Would you approve an applicant with a big advance rent payment?

35 Replies

What do you think of this rental applicant?

Cons: A bankruptcy "less than a year old" (I'm not sure if that's since filing or since discharge), no recent rental history because he was a homeowner, a new wife from his native country joining him soon with her child, and a poor financial condition reportedly from an ex-wife who ran off with the money.

Pros: A seemingly stable but not particularly lucrative corporate job, apparent sincerity about starting a new life, and willingness to put down $10,000 on a one-year lease for $1,550 a month. After part of that advance is applied to the security deposit, the rest would be used for rent in equal installments, leaving $842 to be paid monthly. That amounts to 28 percent of the applicant's gross income, with no other recurring payments.

Should I give the guy a break or find a more conventional tenant?

Break out the real numbers and forget about that big up front lump sum, because IMO this applicant cannot afford your rent amount. How much does he make? What factor do you use in determining what the minimum income requirement must be in order to qualify?

If rent is 1550, and 842 is 28% of income, then 1550 will be close to half of the tenant's gross income. Hence why I say he cannot afford that much rent. See, the problem becomes: what happens in the month when that lump sum has dried up?

Had a guy do this on a friend's luxury home that was headed to foreclosure. Plopped down $15k cash before move in and not a penny more. Was evicted 6 months later. Turned out to be a drug dealer...

Originally posted by @Steve Babiak :

Break out the real numbers and forget about that big up front lump sum, because IMO this applicant cannot afford your rent amount. How much does he make? What factor do you use in determining what the minimum income requirement must be in order to qualify?

If rent is 1550, and 842 is 28% of income, then 1550 will be close to half of the tenant's gross income. Hence why I say he cannot afford that much rent. See, the problem becomes: what happens in the month when that lump sum has dried up?

To clarify, the lump sum would be spread over the 12 months of the lease. It's true that, without the prepaid amount, the rent is more than half of the applicant's gross income. I think that, for a conventional applicant with no other recurring payments, rent equaling 28 percent of gross is OK.

@Bob H. - the problem here is that this tenant does not have sufficient income, so you might have that initial period go well (I suspect somebody this tight on money would have problems along the way too, like when the car needs repairs). But at some point you will find this tenant unable to pay, so accepting them is just guaranteeing a future failure - don't set things up to fail. 

This guy just got out of BK, Ex took all his money, and doesn't get paid much....and now he's still willing to drop TEN GRAND on a rental in advance?? 

Not NO, but HELL NO.

Your applicant didn't fall on hard times. He habitually and consistently makes poor choices. The only benefit I see from having this guy in your life is you getting front row seats to the jersey shore-style train wreck that is inevitably to come. 

Watch the movie "PACIFIC HEIGHTS".... guaranteed to make you think twice about accepting a wad of cash up front and unconventional terms. :-)

Thanks for the idea of spreading out the initial payment over the lease period.  Not sure if it will work (pre-paid rent), but I will try that in the future with an otherwise qualified applicant.  I'm always hesitant with large up fronts, too.    

Pacific Heights is a definite must see for all new landlords like @Marcia Maynard points out. And in her backyard no less. Keaton should have won an oscar for that.  Scary stuff!

Originally posted by @Marcia Maynard :

Watch the movie "PACIFIC HEIGHTS".... guaranteed to make you think twice about accepting a wad of cash up front and unconventional terms. :-)

Ha. I did see that late one night not too long ago! As a former Bay Area resident, I thought it was typical SF socialism, but I'm sure it has lessons for landlords elsewhere.

@Bob H. , I truly hope you take the advice of every single person who is saying no. This is a massive headache in the making. It isn't a question of WILL it happen, but WHEN will it happen. Keep in mind you are in this business to make money. This will end up costing you money. I can almost guarantee it. You want renters who will give you the rent payment, not an excuse for why they don't have the rent payment.

Mindy Jensen, Real Estate Agent in CO (#FA100049656)

OK, thanks to all. Your advice has reinforced my initial thinking. I'll find another renter.

Let's say best case scenario, all works out great for the first year. Then what? He has to move and you need to start over?  He can not afford the rent without this big lump sum lowering his payments.  The best case scenario does not even sound ideal to me and of course, best case scenario does not come close to most likely scenario as others have brought up.

If I can't imagine you living in my property in three years, I don't want you there at all.

A tenant has to meet my criteria based on long term ability to pay and other relevant screening factors. I want my tenants to stay for years so showing me you can pay for 1 year up front does not really impress me. I would tell them to kick rocks if they don't have the long term profile, but do it politely :)

Where did the $10K lump sum come from, do you suppose?  Or course he could have saved every penny since the BK discharge.  But very possible it's money that was hidden from the BK trustee that didn't go to creditors. 

Anyone who tells you their spouse or girlfriend or partner ran off with their money is to be considered a risk in the honesty department. Even if that story is true, people who aren't victims and who have a plan don't need to tell it. Do you want someone with a victim mentality in your rental.  Guess who the next bad guy is?

The guy can't afford your rental. The lump sum is smoke and mirrors to get into a better property. But at least he has a job.  Let him qualify for someone else's rental that better matches his income.

It looks like I may be the only one that thinks this way, but I would consider renting to this guy.  I would want to know:

1.  Where did the $10k come from?  Those fresh out of BK aren't supposed to have money.
2.  Why does he want to live in a property that is way above his means long-term?  What's his plan in a year?  (What's your plan in a year?  Do you want a one year or multi-year tenant?)
3.  Where did he live before?  How much was the rent and was the previous rent paid on time?
4.  How much of a security deposit will he leave vs prepaid rent?
5.  Is he a drug dealer? (Does he have a clear background check)

I guess I'm not immediately dismissing the guy but it does raise some extra questions.

Originally posted by @Matt Y. :

It looks like I may be the only one that thinks this way, but I would consider renting to this guy.  I would want to know:

1.  Where did the $10k come from?  Those fresh out of BK aren't supposed to have money.
2.  Why does he want to live in a property that is way above his means long-term?  What's his plan in a year?  (What's your plan in a year?  Do you want a one year or multi-year tenant?)
3.  Where did he live before?  How much was the rent and was the previous rent paid on time?
4.  How much of a security deposit will he leave vs prepaid rent?
5.  Is he a drug dealer? (Does he have a clear background check)

I guess I'm not immediately dismissing the guy but it does raise some extra questions.

How would you ascertain the honesty of the answers to these questions?  Who tells their potential landlord that they hid $10K from the BK trustee? What applicant, except a stupid one, would say anything other than what a landlord wants to hear when it comes to the long term plan? The applicant has no rental history because he reports he lost his house to foreclosure.  

The biggest concern here, though, is that the rent is 50%+ of the applicant's income.  Without or without the $10K, that should disqualify him.

Well, those are all good questions, but I don't have to answer them at this point, because I have better prospects. In considering this, I did plan to apply part of the initial sum to a security deposit equal to one month's rent before allocating the rest to prepaid rent. And yes, I was thinking two much about getting through the first year's lease rather than the applicant's ability to stay longer.

In my experience, applicants who want to pay more or a large amount up front, usually have a problem of some sort that they're hoping you'll overlook.  In those cases, the landlord should make every effort to determine what that problem is and whether it's something they can accept.  In most cases, it's probably best to just pass.

99.99% sure this guy is shady. It's not going to be worth what you may have to deal with.  

Exactly what Kyle J. Said smoke and mirrors. Look at this not that so that I can use this house as a drug lab. 

I know you've already made your decision, but I thought I'd throw out my extremely valuable opinion anyway ;-)

Just FYI - I would not accept anyone in Chapter 13 bankruptcy, because they can be converted to a Chapter 7 at any time, and then include what they owe you.  I'd only consider a fully discharged Chapter 7.

And, I wouldn't accept someone who is telling me that there will be more occupants, without my ability to vet them.  Call them your wife, her kid, whatever - come apply when she gets to the country.

And I think it's really important to stick to your criteria, and never be swayed away from your criteria because someone is promising to throw cash at you, so you'll ignore your criteria.

If your criteria says someone doesn't qualify whose income is half the rent, then deny him.  End of story.

Anyone who is trying to get into your rental by throwing money at you - is someone all the other smart landlords has denied.  Be one of the smart landlords.

It's greed that usually makes a con artist successful.  They hope your reason will be overcast by something that looks too lucrative to pass up - even if your reason tells you to run the other way.  

Stick to your criteria, and then nobody can pull the wool over your eyes.

Go with your gut man. If you think the guy will pay the rent, take up the lump sum, and work out a deal with him. Give the guy a chance.

Originally posted by @Zlatan Omeragic :

Go with your gut man. If you think the guy will pay the rent, take up the lump sum, and work out a deal with him. Give the guy a chance.

 Unfortunately, a good con man, or woman, can make your "gut" say you can trust them.  The "con" in con artist, means "confidence."  A good con man, makes you feel confident you can trust them.

And unless you're running a halfway house, there is nothing in it for you to give anyone a chance, who doesn't meet your criteria.  Let the other guy be the sucker.

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