What Criteria should Tenant's meet in a C Class Area ?

Question

I own 5 SFH in a C class area of Phoenix AZ. My first tenant in my first home is still with me going on 3 years but one of my other homes is going to have its 5th tenant in a little over 2 years. The difference of income on these two properties is of course significant. What is a realistic criteria for C class property? FICO score, back round check results, proof of income etc?  My manager has also been renting my houses for $850-$895 and we are getting $600 for security deposit. Shouldn't security deposit be the same as one month rent ? Should I use someone that screens tenants for landlords? My vacancy's are always rented quickly but I am willing to pay more and wait longer to find a good tenant that will stay for a while and pay rent on time. Anyone with experience, please help!

Steve Babiak · Answer

So you have a turnover problem, too many and too fast. But only in the one house?  If it is only that one house, what is so different about that house that you only attract bad tenants or tenants that move in short order?  It just might be in the wrong block, the schools there might be bad, the state of repair of the house might be an  issue, the house might lack some features that the tenants there expect / need, etc. Until you identify why the house only gets bad tenants or tenants that quickly move along, and can solve those issues, you stand to only get those tenants.

As far as criteria for acceptance and rejection, sometimes you have to set those to accommodate the neighborhood. Getting monthly documented income of 3x monthly rent is a good number to use, as it is similar to the HUD Section 8 requirement for tenants to contribute 30% of income to pay rent; going to 2.5x would be the same as the Section 8 maximum tenant contribution toward rent of 40% of income. If a higher crime area, expect lots of prospective tenants to have an arrest record of some sort; doesn't mean you have to accept those, but the more stringent you become the fewer candidates will be in the tenant prospect pool for you. What to extract from a credit report is part art and part science; if you just get a FICO (or other branded model of) credit score, you don't get to see the details that matter. And as somebody posted already, getting feedback from the former landlords is a must, but you have to be aware that tenant applicants pull all sorts of clever tricks to try to outsmart the landlord doing this.

Dawn Anastasi · Answer

Don't get less security deposit than at least a month's worth of rent.  If someone doesn't pay your last month's rent, you want at least that.  Ideally, you can get $200 or more than one month's rent.  If other landlords in the area aren't doing that, though, you may have to do just one month's rent as security to be competitive.

For C level tenants, don't go by credit score.  Instead, look at rental history -- if they've had evictions in the past 3 years, they might be unreliable.  Sometimes people look at the last 5 years.

Also check to see who they owe.  If they owe the utility company, they may not be able to put utilities in their own name and that can be a problem.  If they owe lots of people, why not skip out on you -- you're just one more name on the list.

Michele Fischer · Answer

We like to have our security deposit be one months rent, but we have to look at what other landlords are currently charging and go with the market rate to be competitive.  Get more if you allow pets.

For our screening, we don't expect the tenants to have credit, we are thrilled if they have a bank account.  We are running their credit to see if they owe other landlords or utility companies money; auto, consumer, and medical debt is OK.  We are also looking at address history - if it matches the application, if they move a lot.

We are also more lenient on criminal, looking at how many counts, how long ago, and seriousness.  We can't get 3x rent in earnings, but we are looking for steady verifiable income at at least 2x, more the better.  We call prior landlords, employers, and we snoop on Facebook.