potential tenant with high income and many collections

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potential tenant with high income and many collections

Ping W.
Summerville, SC · Member since 2014 · 29 posts · 2 votes

I have a potential tenant who is a CEO of a small company so he has high income but I found 6 collections account when check his credit report. Many of the collection account has a small balance. He could easily pay off all the collection account in one month with his salary.  Also he has many account balance exceeded his credit limit. 

He told me his company is going to pay his rent and his personal references who are also his partners of the company are saying the same thing. His girl friend who is going to move in with him got 20 collection account too and many of them from student loan. 

Should I rent to him? Is there any way I can protest my property? If he can setup a direct deposit, will that be OK. He looks decent and it is a slow season, I really would like to make it work.

Thank you in advance for any advice you can provide!

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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
10y

I would much rather rent to a low income person who pays their bills (rent) than a high income person who doesn't pay their bills.

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  • David Dachtera
    Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    10y

    This probably comes under the heading, "If you have to ask, ..."

    This guy and his people sound like they don't know how to manage money. What reason has he given you to believe that he will pay you while his other obligations go unsatisfied?

    2Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    10y

    I would consider him a high risk tenant. How easy is it to evict in SC. You always have that pressure to put on him. The good news is if you get a judgement against him he has income to garnish.

    2Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    10y

    I would much rather rent to a low income person who pays their bills (rent) than a high income person who doesn't pay their bills.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group546 Reviews
    WebsiteView Page
    4Reply
  • Brian Hunt
    Investor · Brazil, IN · Member since 2015 · 24 posts · 33 votes
    10y

    First 2 questions I have are: How old are the collections and how old is the company? Was this a recent startup in which he's made a quick jump in salary recently or has he made this amount for a while? If he's made it for a while you're looking at someone who doesn't care if his bills are paid on time. If it's a recent jump, do the collections timeline look like it could've been incurred from trying to get the business off the ground and he just hasn't got them paid completely yet? New startups with a quick jump in salary make me nervous.(think bottle rocket) There's a lot of volatility in that. Some more dot connecting might be in your best interest.

    1Reply
  • Ping W.
    OP
    Summerville, SC · Member since 2014 · 29 posts · 2 votes
    10y

    Thank you all for your time responding to me.

    The collections range from 2011 to Sept 2015. His company started this April I think. On his application, he said he makes more than $10 a month for a couple of years already. I really don't understand why he would not pay off those collections. He told me his credit report was hurt a lot because his divorce. Is that possible that the Fed tax lien is because his divorce? Also he is saying the company is going to pay the rent. He wrote me a company check for the processing fee with his signature.

    0Reply
  • Ronan M.Pro Member
    Rental Property Investor · Chicago, IL · Member since 2015 · 352 posts · 281 votes
    10y

    Collections spread over 4 years, a new company less than a year old (very high risk) and a Fed Tax lien.

    Run.

    1Reply
  • Linval T.
    Investor · Bay Shore, NY · Member since 2014 · 1k+ posts · 688 votes
    10y

    @Ping W.

    I/we know it's a slow rental season, but, you might be better off having the place empty now, while you wait for the next better qualified tenant, than take this CEO with credit issues and have to spend money and time to evict him.

    There are excellent inputs from the BP community, now, you should manage from your head, not the heart and let this potential tenant take his financial issues elsewhere.

    Good luck and best wishes with your REI activities.

    3Reply
  • J Holmes
    Lender · Milwaukee, WI · Member since 2015 · 13 posts · 4 votes
    10y

    Is there a chance that maybe some of the collections are obsolete, out dated, or erroneous? You could refer him to credit repair specialist and/or make it a requirement for him or any other future tenants.

    I am a credit repair specialist and I run into a lot of people who have similar issues regarding their credit reports. We specialize in late payments, charge offs and collections. Repos, foreclosures, bankruptcies, judgments, tax liens, etc. All these things can be removed and or updated to help boost a person's credit score and clean up their credit report.

    We can talk more if you would have any questions for me.

    0Reply
  • Alisa O.
    Investor · Buffalo, NY · Member since 2014 · 83 posts · 46 votes
    10y

    @ Ping W

    Collections mean non-payments. You are also saying that they did not just happen - he had 4 years to fix the oldest one but did not care enough to do so. Additionally, if he can pay off all of those collections with one salary check, but did not do it, shows what kind of character he has- no regard for other's property. Do you want to be a collection #7?  

    His company was set up in April, they don't have long enough track record to prove payment. Just as easily they opened up a company, just as easily they can close it.

    Avoid being short sighted in the long term business.

    1Reply
  • Michael Boyer
    Investor · Juneau, AK · Member since 2015 · 980 posts · 741 votes
    10y

    the saying goes, "the leopard doesn't change his spots"....so I tend to agree with the board, and my only caveat is that you really want to know will he pay the rent...I have had a few very good long term tenants who made rent a priority but still had the errant medical bill or consumer credit problem..so I would really probe every landlord and the rental history, but recency and amount of payment  issues tends to indicate that if he won't pay others, he probably won't pay you..a vacancy may be better..with an empty unit, remember an ideal tenant could call anytime..you may have to cover the mortgage another month, but you also cover it if he doesn't pay, plus evict, and re-prep the unit....vacancy wins unanimous decision...

    1Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    10y

    I will add to what @Linval T. said. Screening your tenants is one of the most important tasks for a landlord. You are better off waiting for a good tenant that taking a bad tenant sooner.

    0Reply
  • Michele FischerPro Member
    Rental Property Investor · Seattle, WA · Member since 2013 · 2k+ posts · 1k+ votes
    10y

    I'd encourage you to come up with objective criteria so it is easier to make an objective decision.

    I look for applicants with income in a sweet spot - they lose points for having high income, because it is a red flag of why aren't hey looking for a better place.  So few people actively choose voluntary simplicity and live below their means.

    I give points for having a job for a year or longer, that shows more stability.  If they have not held any job for very long they lose points for serious instability.  I look at how long they have lived at previous addresses with the same thought process.  Extra points if they have lived in that area for 5 years or more, they know and like the area.  I verify income with pay stubs and my screening company digs and makes phone calls.

    Lose points for bankruptcy, suing others, or being turned into collections.  If any of the collections look like it is a utility company or prior landlord, or if there are prior evictions, it's a denial.  They lose points if they have over $2K in debt, and their credit fitness score is graded on a sliding scale.

    From what you've shared, these applicants are not overly concerned about their credit, so they will not be overly concerned with any financial losses you try to push back to them.  If you do want to proceed, I would increase the deposit.  Watch the laws on proper notification under the Fair Credit Reporting Act, as you are making housing decisions based on their credit report.

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  • Tomas Calvino
    Investor · Palm Bay, FL · Member since 2014 · 50 posts · 13 votes
    10y

    After reading all of the other responses and really thinking about it, I personally would not rent to this person. Being the CEO of your own company is not as prestigious as it sounds, especially if the company was started in April. And the fact that the company will be paying the rent means nothing if he is the one that signs them. I would wait until a truly qualified applicant comes around and set yourself up for no hassles in the future. Dont set yourself up to post a tenant horror story in a couple of months by choosing this guy. 

    0Reply
  • Ping W.
    OP
    Summerville, SC · Member since 2014 · 29 posts · 2 votes
    10y

    Thank you so much for everyone's input. I really appreciate your help and your professional advice. 

    I knew he was risky. I was just trying to pursued myself to believe in him so that I can get over with the tenant search process.  I should not have done that. I will stay cool in this slow market and wait for the right tenant. Is there a chart shows how easy the property will be rented on different month of the year in Charleston area? Usually how long it will take you to have your house rented?

    Thank you!

    0Reply
  • John Semanchuk
    Charleston, SC · Member since 2013 · 380 posts · 157 votes
    10y

    I have been the president of my own construction company... Sole employee too.   The Ceo factor means nothing.   

    I know it's hard to rent anything as we approach the holidays but he sounds like trouble.  If you do try him out as a tenant, I would at least ask for first and last month's rent and security deposit all up front.    The only time I've ever exercised bad judgement with tenants, is when I've been desperate. 

    Can you afford to advertise it at a very reasonable price for a 6mo lease?   That would put you back in a good rental cycle.

    0Reply
  • John Semanchuk
    Charleston, SC · Member since 2013 · 380 posts · 157 votes
    10y

    I'll add that I prefer to keep my rents reasonable which gives me a wider choice of tenants, tenants that tend to stay longer and they usually rent out pretty quickly.   From now to January is probably the hardest time of year to rent though.

    0Reply
  • Rob Green
    Investor · Mapleton, UT · Member since 2014 · 52 posts · 11 votes
    10y

    It's been my experience that if someone can pay off their bills, but won't, you'll never get them to pay.

    Just because he's drawing a large salary, does not make him a good credit risk for you. If he's not paying his personal bills even though his able to, it's not unlikely that his business is following the same pattern. If one of his businesses' creditors get a judgment against him, they could get a writ of execution and drain his company's bank account. 

     If his personal creditors start filing judgments against him, and he skips out on rent too, you'll likely have to go through an eviction process. You could and end up spending more money in legal fees to evict him, than what you would have had to pay to cover your vacancy for awhile. 

    I'd recommend moving on to another prospective tenant.

    0Reply
  • Ralph Milan
    Santa Ana, CA · Member since 2015 · 1 post · 0 votes
    10y

    I wouldn't rent to him. If you research his "employer" I bet he is the owner.  I see this all day on the deals I work.  Those collections are there for a reason.  He doesn't pay his bills or when things are good he doesn't go back to handle his obligations. The only thing I might consider is if they are medical collections but there's more renters out there - move on! 

    0Reply
  • Mike F.
    Investor · Denver, CO · Member since 2015 · 570 posts · 521 votes
    10y
    Originally posted by @Ping W.:

    I have a potential tenant who is a CEO of a small company so he has high income but I found 6 collections account when check his credit report. Many of the collection account has a small balance. He could easily pay off all the collection account in one month with his salary.  Also he has many account balance exceeded his credit limit. 

    He told me his company is going to pay his rent and his personal references who are also his partners of the company are saying the same thing. His girl friend who is going to move in with him got 20 collection account too and many of them from student loan. 

    Should I rent to him? Is there any way I can protest my property? If he can setup a direct deposit, will that be OK. He looks decent and it is a slow season, I really would like to make it work.

    Thank you in advance for any advice you can provide!

     Absolutely one of the top 3 worst traits and red flags, you should forget about this prospect immediately.

    Beware, unless you can blast him with a huge security deposit like 3x monthly rent, I'd avoid him like the plague. People with high income and lots of credit issues as you described demonstrate they are  manipulative and work the system, he doesn't care about those creditors as his high income allows him to get around them in life and get what he wants without those things stopping him. Your demands for rent will be taken just as seriously by him. Paying his obligations are not high on his list, eventually neither will be paying you.

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