Potential Tenant with Large Inheritance, but no Income

25 Replies

I have an applicant for one of my properties who has no income, but a large amount of money in their name from an inheritance.

Everything else being equal, would you consider renting to someone in this situation? If so, what additional documentation would you ask for, and what additional precautions would you take?

"Large amount of money" is not an exact term.  If you mean they have at least five times the annual rent in cash then they would probably be a great tenant.

I would make them prove it same way banks make applicants prove it for a loan.  Account statements is probably the best way.

That's a challenge, more info needed. Inc. How much $$talking about, their plans to have incoming in, lease term, and their payment history with other creditors.  I'd treat them just like any other prospect and run the full application on them and compare to other prospects. If ur challenged in getting this rented you might also want to evaluate your marketing strategy. 

Last thought, if they inherited money and they had none before you may run into a shortage sooner rather than later. Character goes a long way. Push comes to shove, rent out for 18 months (to get out of winter) and get them to pay in advance. 

NO problem ! Just write a closed ended lease. Lease for one year, prepaid 12 months, and prepaid security deposit. A friend of mine just did this. Make sure the cash is on you bank account 14 days before the move-in date. Don't use bank transfer rather check. 

I would agree that you have two options. 

The first was already mentioned, full 12 month payment in advance. 

Another option is that the full 12 months is placed in an escrow account. You withdraw the rent amount from the account each month. Then the money is secure but not spent in advance in case of emergency and the tenant must vacate - extended out of the area medical treatment, care of inlaws or locates employment. 

Thanks for the advice everyone! I do have other applicants, but this seems like the best tenant to me, so I would love to make it work with them. If they are not willing to pay the full year up-front (either directly or into an escrow account), is there a minimum cash balance you would want to see proof of in their bank account before renting? @Account Closed mentioned 5x annual rent as a good baseline. Does this seem like a good rule of thumb to others as well?

I would check your state laws in regards to taking 12 months up front. Some states only allow 2-3 months.
I too would find out how much was inherited and verify amount as well that they actually inherited it. Could it be drug money? You don't want your rental to turn into a meth house. Sorry if I am leery but I have been bitten before.

Originally posted by @Evan Williams :

Thanks for the advice everyone! I do have other applicants, but this seems like the best tenant to me, so I would love to make it work with them. If they are not willing to pay the full year up-front (either directly or into an escrow account), is there a minimum cash balance you would want to see proof of in their bank account before renting? @Account Closed mentioned 5x annual rent as a good baseline. Does this seem like a good rule of thumb to others as well?

 Lenders would require that a borrower's housing expenses take up no more than 35% of the gross pay. If your tenants could prove that they have funds in the bank (or investment dividends) which would allow them to meet this requirement, then why not rent to them. 

Having a tenant who has the cash in the bank seems a little less risky than a tenant that has a good job but no savings. What is the worst case scenario (besides it being the home of a drug lord/meth house), they don't pay the rent and you evict them. We are coming out of the winter season so a re-renting fear should be minimized. 

I would still run a credit report as an indicator that they know how to manage their money. A foreclosure victim with a large cash inheritance is almost as risky as a meth house, IMO.

I expect them to simply right a check.  In high end properties it is actually much more common than you might think.  I will also say many times the people will not show exactly how much money they have in the bank they will only show some of their assets.

I ended up deciding to move forward on renting to this tenant. The rent is $2,300 a month, and the inheritance amount was over $175k (I did get proof of these funds from a bank statement) so it seems like they should have no problem paying rent. In addition, the tenant agreed to a 16 month lease so the next potential vacancy will be in June, and they will be paying the first 4 months of rent up-front.

Thank you all for your input, and I will let you know how everything turns out!

Originally posted by @Evan Williams :

I have an applicant for one of my properties who has no income, but a large amount of money in their name from an inheritance.

Everything else being equal, would you consider renting to someone in this situation? If so, what additional documentation would you ask for, and what additional precautions would you take?

Hello Evan,

This seems like a very interesting situation! I would also be very nervous about it as well. What else is going on in this situation? Do they have one lump sum in their account? Is it enough to pay their bills/rent for well over your lease? Also, some inheritance can be given in monthly installments and that may be a problem.

The bottom line is, if they have enough money either in their bank account or they receive enough monthly, then they should be fine.

Assuming they pass the background check etc.

I had an older applicant that had only part time income that didn't meet my criteria for the home she was renting. I told her based on income that I couldn't approve her application.  She told me she would write a check for the entire year. She wrote a $16,000 check to me. I called my bank to verify funds with her bank and after checking on it they told me it was totally legitimate. Her bank said she had plenty of money and was a great customer. I was told it is not uncommon to see an older person pay cash for rent like this. I did a Google search and found out she owned a business for years, so the source of the money was legitimate. She stayed one year and left the house identical to move-in. I was concerned but it all turned out fine. I just wanted to share my story so you can see that although unusual, it doesn't mean there is a problem. Good luck!

Why someone with an inheritance of that amount and no job would want to burn through it renting a house is beyond me. I hope it works out for you, at least you got a number of months up front from them. I hope you're not back here in 6 months asking for eviction advice :)  . Personally, I am with J Beard in that I am leery of renting to someone who doesn't have any apparent way of replenishing their funds. 

I tend to agree with @J Beard. What if they spend the inheritance? It is not unheard of for people who come into large sums, just look at the history with lottery winners. Then you are left with nothing. They have no current income to cover bills. If you rent to them you are betting that a) they are good money managers and b) that they finally will get a job when the money runs out, as it inevitably will if they plan to use the inheritance to pay current bills. Too risky for me, I would pass on this tenant @Evan Williams .

I wouldn't take a years pre-payment of rent.  If something happens and you need to get rid of the tenant a long period of pre-paid rent will make that a lot more difficult.

We had a similar situation with an inherited tenant.  She had a "large" settlement from a divorce.  The previous owner told us "she has a lot of money."  We later learned that this "large" amount of money was $60k.  I don't know about you, but that's not large to me.

At any rate, things were fine for about a year, then she started paying late.  She was full of excuses and couldn't seem to get it together.  We kicked her out (didn't renew her month to month tenancy).  Seems when she blew through the money, she was back to being a poor tenant.

$175k is not a lot of money either.  This person will eventually have to get a job again.  I would be very cautious about renewing the lease when it comes due.  I would fully recheck their financial situation before renewing them.

Good luck.

There was a recent poll with the results being upwards of 60% of the people in this country could not pay for a $500 car repair without using credit cards or borrowing money.  To me that is beyond belief, but my interactions with tenants over many years have borne this out.  Most tenants are a car repair or lost job away from not being able to pay their rent

The OP has an applicant that has provided proof of funds and only signed a lease for 16 months.  For the next 16 months, the applicant would be spending $36800 out of $173000 or  21% or their available funds which is far below the threshold that most landlords lose.  Yes the could spend it all tomorrow but the paycheck to paycheck worker can lose their job as well.  If everything else checks out, I can't imagine why a landlord would not take this deal

I probably would not have accepted this tenant because they don't have a job. As others have stated, people with windfall income can burn through it in an incredibly short period of time. I'd want to know "why" they're not working. Regarding collecting a year's rent, I'd do this (and it's allowed in my state)

well looking at this being posted 5 years ago, I am quite certain you have made a decision. LOL

Yes I would go for a Pre Pay. Ask them for 2 years up front. With only having limited info on the entire situation, I think that would make me happy, Heck probably a year up front would do it for me. 

Hope it worked out well for ya! 

@jinhee hann

Hey, just saw your question.  I'd say it's too heavily regulated now.  You have to be an owner/occupant renting out bedrooms or an "ohana" in your back yard.  About two years ago they made everyone renting single family homes get a stvr permit to keep doing so.  The permit stays with the house, so if you can find one of those it's well worth it.  That's on the Big Island.  The other islands are a bit different.