Cincinnati, OH · Member since 2016 · 25 posts · 7 votes
Hi there! I'm new here. My husband is the real guru, and I'm managing the properties we're acquiring.
We're currently screening tenants for a duplex. One potential renter wants to pay with her 401k, requesting disbursements as she needs the cash. She attached a document with her application, showing she pulled $32,000 after taxes in January. Rent is $1150 plus utilities.
I asked for a bank statement. She said she does not have a bank statement showing any monthly disbursements or cash flow. She offered to pay in advance if needed.
I'm trying to be understanding, but this is new territory for me. What should I ask her for? Should something be specifically added in the lease regarding this? Are there any red flags?
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
10y
Instead of having her pay the entire rent up front with 1 months security deposit have her pay a very large security deposit. 6 months or so. This way you are not stuck holding the bag on month 13 if she is out of funds. Doing it the 2nd way on month 7 if you do need to evict you will be able to recoup your costs. Your chance of eviction is also much lower since she has so much to loose.
Cincinnati, OH · Member since 2016 · 25 posts · 7 votes
10y
She turns 62 at the end of this calendar year and will be accepting retirement at that point. She's been very forthcoming with bank statements after I asked. I still can't see the source of her funds, only the transactions. Waiting to hear back from previous landlords to make the final call. Thank you all so much for your input. I appreciate it!
Banker · Nationwide · Member since 2015 · 4k+ posts · 1k+ votes
10y
Based on what you've posted, she has retirement assets and is at the age that she can take those assets as ordinary income without having to pay any early distribution penalty. If you are concerned about her being retired, I think @James Wisegave some good advice with regard to the large security deposit.
Instead of having her pay the entire rent up front with 1 months security deposit have her pay a very large security deposit. 6 months or so. This way you are not stuck holding the bag on month 13 if she is out of funds. Doing it the 2nd way on month 7 if you do need to evict you will be able to recoup your costs. Your chance of eviction is also much lower since she has so much to loose.
This would probably be illegal in most states probably, in CA for example the security deposit is limited to two months of rent for an unfurnished property. Even if the state does not set a limit, the city of county may have set the limit. Having tenant pre-pay the rent for several months should not be a problem.
She turns 62 at the end of this calendar year and will be accepting retirement at that point. She's been very forthcoming with bank statements after I asked. I still can't see the source of her funds, only the transactions. Waiting to hear back from previous landlords to make the final call. Thank you all so much for your input. I appreciate it!
If she is retired and her source of income is the distributions she takes from the 401k - I don't see anything wrong with that.
Cincinnati, OH · Member since 2016 · 25 posts · 7 votes
10y
After hearing from her previous (not current) landlord today, I went ahead and approved her.
We're having her pay the deposit and pro-rated month of March up front, but feel confident that she has enough funds to cover the 1-year lease on a monthly basis. My hold up was not being able to see proof of the funds. I wish there was a better way for applicants like her to show this information. @Kris Haskinswe have the letterhead now, so hoping this tenant proves to work just as well!