First time screening tenant, please help!
Investor · Royal Oak, MI · Member since 2015 · 63 posts · 9 votes
First time screening tenant, please help!
Most Popular Reply
Investor · Peachtree Corners, GA · Member since 2014 · 1k+ posts · 1k+ votes
10yThis is not even worth the time you took to post. Next!
30 Replies
- Rental Property Investor · Cleveland, OH · Member since 2015 · 1k+ posts · 880 votes10y
In these kinds of situations you really have a few choices:
1. Establish an acceptance/denial protocol and stick to it no matter what. Similar to what underwriters do. Collections accounts, low credit score, low income, evictions, felonies. Any of those things would trigger a no and you move on to a "qualified" tenant.
2. You make a judgement call on each individual situation and go with your gut after reviewing all the pertinent information.
3. You don't review anything and let anyone in.
Ok 3 was a joke but I wanted three options.
Does it all add up to a divorce? Sure. Is it a deal breaker? That's up to you. The way I look at collections accounts is why are they there and how much are they? Seems like they originated in the divorce, so I personally would look past it. The amount isn't killer, so you're probably ok there too. At the end of the day, the thing to be concerned with is if the creditor filed a judgement and all of a sudden their income was garnished before they got it. If the payment withheld was so much that they couldn't afford rent anymore (or it would be tough) then you run the risk of having them not be able to pay you. Bad news. This doesn't seem like that case though.
If the collections accounts and the divorce are fresh, then the low credit score is the result and should bounce back pretty quick if they get rid of the collections and continue making on-time payments.
Hope that helps.
- Property Manager · Cumming, GA · Member since 2015 · 261 posts · 199 votes10y
Credit scores under 550 are automatic denials for us. If your home shows nicely and is priced right, the Atlanta market will bring you a better qualified family in no time.
- Investor · Royal Oak, MI · Member since 2015 · 63 posts · 9 votes10y
thank you guys! I'm still wrestling with this because I get a good vibe from her and get the sense she is a long term renter (in part because of the credit score). I'm going to call her current landlord tomorrow as well as he place of employment to gain some more comfort.
If anyone else has any opinions please share!
- Investor · Boulder, CO · Member since 2015 · 137 posts · 36 votes10y
I will not give advice but I stick to my business rules - they have not failed me yet.
- 10yMichele FischerPro MemberRental Property Investor · Seattle, WA · Member since 2013 · 2k+ posts · 1k+ votes
What are the details on the six collections accounts? If you can tell that it is all consumer debt, that is a good sign. If any of it is utilities or something that in any way could be amounts owed to a landlord, that is a red flag.
How long has she lived at her current place? Under two years, red flag. Why is she moving? Is it anything that makes her seem picky, unreasonable, negative to landlords, etc.?
How long has she held her job? How far away from her previous residences is she moving? If she knows and is comfortable with the area, bonus points.
I go down all my criteria adding up points. Each application gets a discard, accept, or put in holding pattern status based on total points. Develop a process you can trust and follow.
- St Thomas, Ontario · Member since 2013 · 575 posts · 408 votes10y
@David Kenny Believe it or not there are tenants out there who do not have six accounts in collections. If you look for one, you will find one. Screening is acutely important in avoiding downstream tenant issues. Six accounts in collections would automatically disqualify someone from living in my units. It is still possible to pay your bills as you go through a divorce. Would the bank cut you a break if you went through a divorce and decided not to pay the mortgage on your rental property? If a landlord then was looking at an application from you and you had collections from failure to pay the bank, would you expect them to approve you? I am afraid you seem to eager to embrace a weak candidate. Best to read up on evictions and small claims court and then decide if you really want to risk going through those processes on the grounds that you think this is a long term renter. Tenants all leave, the only question is when.
- Investor · Royal Oak, MI · Member since 2015 · 63 posts · 9 votes10y
All great information, thanks again!
@stephen I think you may be right, but it's not because I'm too eager (had 5 other calls in 24 hours) I think I'm having trouble telling a nice person no, as lame as that sounds.
- 10ySterling WhitePro MemberRental Property Investor · Indianapolis, IN · Member since 2014 · 554 posts · 153 votes
I totally agree with @Matt Motil above on having your acceptance/denial criteria that you do not sway from. When it comes down to approving tenants you have to take out your emotions, and stick to your criteria.
There will be plenty of other qualified applicants(hopefully your property is in good location). Just be patient
Hope that helps
- Investor · Fort Worth, TX · Member since 2015 · 109 posts · 41 votes10y
I can't say what you should do but I would not even consider renting to her. One account in collection would be enough for me. A divorce doesn't hurt your credit. Not paying your bills does. Also from my experience it seems like the very worst tenant applicants usually seem like they would be the best. Good tenants don't put much effort into making it seem like they would be good tenants but terrible tenants put a lot of effort into it. They often seem like the best ones at first.
- Investor · Fort Worth, TX · Member since 2015 · 109 posts · 41 votes10y
Hey David Kenny, you don't really have to tell them no. Just don't tell them yes. I don't know about Georgia but in Texas the law says if a landlord does not contact an applicant within 1 week after they turn in the application then that means they were officially rejected. A lot of landlords I know have a hard time saying no so they just don't call them back.
- Professional · Atlanta, GA · Member since 2015 · 63 posts · 30 votes10y
I've run tenant screening companies for years. Some good advice from others, I will echo some of it and add in personal commentary:
1. Have your criteria so you aren't doing what you're tempted to do, 'go with your gut'
2. Prior behaviour really does predict future..maybe they are breaking pattern, but i encourage you to look for other applicants w less-blemished history, they are here (i'm in atl too)
3. Careful on the way you handle, don't get sideways on FCRA
- Investor · Royal Oak, MI · Member since 2015 · 63 posts · 9 votes10y
Originally posted by @Pam Storm:
I've run tenant screening companies for years. Some good advice from others, I will echo some of it and add in personal commentary:
1. Have your criteria so you aren't doing what you're tempted to do, 'go with your gut'
2. Prior behaviour really does predict future..maybe they are breaking pattern, but i encourage you to look for other applicants w less-blemished history, they are here (i'm in atl too)
3. Careful on the way you handle, don't get sideways on FCRA
Very good advice, can you elaborate a little more on the fcra comment?
- Investor · Alpharetta, GA · Member since 2015 · 241 posts · 185 votes10y
Hi David: Having invested in the Atlanta suburbs for over a decade now, I can give you my two cents worth, after years of experience. What the others have said here is correct. Please keep searching. I have found that there are more excuses for not paying bills than there are tenants. In fact, after 3-4 months, the excuses will start to pour in. First, its the collections that needed to be paid. Next month, it's some type of fine they had to pay before your rent. Next up, their car broke down, their son needed to be bailed from jail, etc, etc. Yes...all of these came from tenants I have had ( some had so many excuses that it still makes my head spin). I can list far more excuses- but you see the picture here. Think of it this way... If they come to you with multiple accounts in collections, they are coming from somewhere else. Why? Please keep searching. You will find a better candidate. If you can't look them in the face and tell them "no" - blame it on a fictitious partner that controls the funds - he/she said "no" - not you!
- Professional · Atlanta, GA · Member since 2015 · 63 posts · 30 votes10y
FCRA is Fair Credit Reporting Act and meant to ensure you don't discriminate based on the basis of race, color, religion, national origin, sex, marital status, age, or public assistance. If you take 'adverse action' (decline them or request a higher security deposit) on an applicant, you should provide an Adverse Action Letter to the applicant (many templates/guidance online etc).
If you don't have acceptance criteria and appear wishy washy, it may appear (at times) as discrimination -- even if you're trying to be nice... I would steer clear of 'grey areas', even if you're trying to be nice. Run it like a business.
- 10yDave MeyerPro MemberHead of Real Estate Investing at BiggerPockets · Seattle, WA · Member since 2015 · 224 posts · 826 votes
The one time I changed my criteria for tenant screening it was a disaster. I had a good vibe from them too, and it was an absolutely miserable year of my life dealing with them. The only way I would even consider this is if you have a lack of applicants and are facing the possibility of long-term vacancy. Then it MAY be worth taking the risk.
- Investor · Miami, FL · Member since 2015 · 1k+ posts · 390 votes10y
Originally posted by @David Kenny:
Hi Everyone,
I have a potential tenant who has a 529 credit score, and 6 accounts in collections ($4k total). They earn 3x+ in income, no felonies, no evictions.
The credit score would normally mean I would deny the application, however the cause is due in large due to a divorce, in which they were still on the mortgage. They have a divorce decree, and notarized paper work saying they were not responsible for the payment since 2010.
They have paid all their student loans off in time, and have paid their car payment on time since May of this year.
What should I do? Has anyone run into something similar (a divorce affecting their credit)? Does the explanation seem logical? Would 6 accounts in collection scare you away?
I thought screening would be much more cut and dry, but it gets to be more of an ethical dilemma than I anticipated (people need shelter).
Any help would be appreciated!!
Hello David,
I know this can be a difficult decision to make! We come across things like this all of the time. Their credit score might not be an accurate reflection of their current situation. There are many things you can do to review potential tenants.
Some of the best policies is to check their credit report in detail...is there anything else concerning you? Check their criminal history make sure everything checks out. Do a rental verification. See if they were good tenants in the past.
There are many different situations out there. Most potential tenants can be done on a case by case basis, but you should always have some guidelines in place.
Please let me know if you have any questions.
- Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes10y
@David Kennya word of caution about calling previous landlords. Verify they give you a valid name and number. A few years back I had someone give me a bogus name and number. After I did a little research, I was able to determine the "landlord" was a friend or relative. I immediately denied them due to dishonesty. I do have one tenant that has a low 500's score and they have been great but maybe I just got lucky with them! Tenant screening is your first line of defense being a landlord.
- Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes10y
IMO, FICO scores are so generic that while you can filter out, you may also be throwing the baby out with the water - - missing tenants that are just recovering from messy lives.
Before pulling a CR/BG report, I vet the previous landlords, employment and income, thus saving expense for a non-starter.
Then, the CR (if you get a real one from Trans Union/Experion) will have all the accounts and their payment histories.
My first pass reading is to see what's happened in the last six months, and then review the 30,60,90 day lates. BKs, write-offs, collections prior to the six months I just ignore, but issues during this time is my primary criteria - - what's happened here will happen to you too.
- Toronto, Ontario · Member since 2015 · 62 posts · 9 votes10y
Actually I had a tenant who's score was very questionable. She advised this was due to previous job loss and living off a credit card. I agreed to renting the unit but requested a co-signer who would be responsible for a default in payment. She agreed and included a past employer.
This break given her resulted in some amazing things. She never missed a payment even when rents were increased. She completely looked after the property and left it in excellent when she eventually left. The only reason she left was because she became an owner.
Will every situation end up this way, no. You do have to do your due diligence but even then a tenant who looks great on paper could turn out to be a dud.
- Pomona, CA · Member since 2013 · 9 posts · 2 votes10y
I have a tenant, moved in with less than perfect credit, About 50% debt to income ratio and unstable job history. I took gamble needing to get the rent coming in and almost 4 years later they have been the best tenant. Hardly call, paid rent late twice (notified me 10 days prior) and take decent care of the home and yard. I couldn't been happier with them.
On the flip side, I have another tenant who makes 35% debt to income and stable rental and job history and they are late almost every other month on rent.
Gut told not to rent to the first one and to rent to the second, boy was I wrong and I worked full time in Real Estate Sales/Rentals. Follow your what you thing feels right and it should all work out just fine, of course, with clear expectations and a signed lease.
- 10ySergio AltomarePro MemberRental Property Investor · Greater Philadelphia · Member since 2012 · 135 posts · 60 votes
Lots of great advice here, so I will share my story. What I've learned is that it is not about the tenant, but the property COMBINED with the tenant.
If the property will rent to better paper tenants then spend little time vetting them, if not then keep reading.
We have a property in a not so hot rental area (old house under water) and were getting plenty of people interested, but most were either weak to begin with or would have blemishes on their background. As we all know, if they were as brilliant and resourceful as we are then they would all be owning a duplex and living in one unit and renting the other. That obviously is not the case with many, many people. Credit scores can get wrecked for many reasons, but too many people have no idea of what the impact is.
The tenants we eventually rented to are a couple that lost their house and were in a struggle. They even had difficulty showing any kind of income, let along the amount they needed for the house. In the end, it came down to my gut, but my gut based on many tests (and desperation to find a tenant - took 6 weeks), which included asking as many questions that I could think of and requests for many documents and information. Each was a test and gave me more and more confidence that they were telling the truth and really wanted to be there. How quick they responded, what they provided and the clarity of their story was huge. The end result is that they are still the tenants that take care of the house better than I did or any of my other 50 tenants!
Bottom line is that you have to get to a level of comfort that they can afford the place and are responsible enough (as individuals) to warrant an approval. This level of effort to place tenants drops with the more units you have though, as time and time to "being nice" is reduced dramatically.
On the flip side we have tenants that we followed our processes without regard to the person, but now have some good paper tenants that we can't wait to leave.
Sergio
- Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes10y
As long as you can get a qualified tenant easily, why take the risk? I don't care what the cause was, you're running a business, and part of that business is risk management. If you can get a qualified tenant without the issues then why risk it on a potentially bad tenant regardless of what the cause was? For all we know he had multiple affairs and that led to his divorce, so he has reckless behaviors that led to his financial issues. Or maybe his wife was the one that stepped out. At the end of the day, it's not worth the risk taking on someone with any drama in their past, regardless of their culpability.
- Real Estate Broker and Attorney · Durham, NC · Member since 2015 · 74 posts · 73 votes10y
Hi There!
In my own experience is a Landlord with a pretty decent track record, it all comes down to:
1. Choosing the right tenant
2. Controlling how the tenant perceives you
Choosing the right tenant, for me, almost NEVER has to do with the credit score. Of course, I do the credit check because I have some form of standards, but you have to keep in mind - that potential tenants with a wonderful credit score are most likely not going to be long-term tenants since they probably are saving up for a downpayment. That doesn't mean you should reject people with great credit scores by any means, but don't make that the be all and end all.
The most important characteristics, for me, in selecting a tenant are (1) stable job and sufficient verifiable income, (2) at least a mediocre credit score (600s, I have even accepted 500s, but will never go below that), and (3) general vibe of how much they want the property and how long they intend to stay - with #1 being the absolute most important. See what is affecting their credit score, is it reluctance to make regular payments? Or was it an unfortunate sequence of events that led to a divorce, foreclosure, or bankruptcy?
Once I have found that tenant that fits neatly into the characteristic analysis outlined above, then I set the stage for the tenant to know that I am a serious Landlord and that I do not let people off the hook. That their home must be the #1 priority. I don't say this directly but there are several steps I take to make sure they get that vibe. For you, this can be done by (1) having an actual attorney draft a lease for you with their name somewhere on the front of the lease. This lets the tenant know, hey I have someone out there to protect me, and I am ok with reaching out to them if needed. Make sure to go through the lease with your tenant and tell them "My attorney says, ABCD." Don't overdo it though because it could be perceived as a threat. It does not cost much to have this done and also will give you the most protection as a Landlord if you have an attorney draft you a Landlord friendly contract. (2) Act Business Like. Having an actual business name on your lease is very important as the tenant will know they are not dealing with someone that does not understand the nature of the business. Additionally, under all circumstances, you must also act professionally and business-like. This means, business attire when you sign the lease. This also means returning their calls and apologizing when you do things late.
One extra measure of protection I very often take is, depending on how bad their credit score is, I take extra deposit (an extra half a month, sometimes whole). If you are ambivalent about them, chances are many others were too and the potential tenant could be willing to accept those terms because, well, they are desperate. That is not to say you should take advantage of their desperation, but you may need that extra protection if they, say, don't pay their final month's rent and you will likely have some repairs in the end too - that extra cushion can be very helpful.
Finally, don't let your emotions get in the way. If their income is borderline and their credit score is nothing to smile at and they have an awesome personality or are very kind or love your property and are dying for it - that is not enough. However, if their income is sufficient for rent and utilities and some money on the side, and you get a good vibe of their overall seriousness and reliability, a mediocre or even "kinda bad" credit score can be overlooked.
Hope that helps.
Nada
- HVAC mechanic · Philadelphia, PA · Member since 2015 · 241 posts · 57 votes10y
Definitly check with previous landlords. Before you call to check references, call and ask if they have any vacancy. If they don't know what you're talking about, then you know the applicant gave you a friends number because he probably has something he doesn't want you to know about. Also, don't just call their present landlord. He may tell you they're great tenants just to get rid of them
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