Would you rent to this person with a past bankruptcy?

Question

They didn't mention it on the phone, only mentioned that they went down to "Zero" when the real estate bubble burst a few years ago.

He gave me a detailed run down of his story (of course it's difficult to verify any of it). He said they have learned their lesson and have downsized their lifestyles, and they had a $6,500 a month mortgage payment before. I will note they showed up in an 80K Cadillac truck, and a 50K Chevy pick up (he has his own construction business, she is a stay at home mom).

I'm a bit hesitant. They do have an existing landlord for the past 3 years, though who knows if he tells me the truth if I call, he may just be trying to get them out. I could ask for an additional deposit.

I will say as much as I want to say no due to the fact that they know how to game the system and are still living a life of lavish cars and houses (renting/leasing all probably) and his income is tied to the construction industry, so a down turn = problems.

Then again, they were OK with the additional rent for them and their pets, which is extra profit...assuming they don't screw me. On the plus side if they don't screw me, they will likely be here a long time. Almost every rental in my neighborhood is only occupied for a year before it turns. 91% of people here are homeowners, it's a highly educated, high income area, so usually when you find renters they are only temporary.

Jack B. · Answer

The business logic is the vast majority of tenants have bad credit otherwise they would own. Tenants in my other properties have had bad credit and still pay on time. I tried raising the standard but damn near nobody qualifies. If they did, most would own. On the rare occasion you do find one who is qualified it's because they need a temporary place to stay while they look for a house to buy.

The other business logic to it is that I get a tenant for a long time, and less vacancy costs. With such high standards for credit it's nearly impossible to find a tenant. Three months and nothing. Before I filled vacancies in a breeze and my tenants with bad credit have always been on time. I only had a girl with NO credit be late so far, but she doesn't have bad credit just NO credit.

SO I figure I get extra deposit just in case, keep them on a MTM lease, and charge higher rent for the extra risk. I can visit the place they live now to make sure they are not trashy and have 3 months worth of rent as their deposit, on a MTM lease. Risky, sure, but I'm also with no other prospects that don't also have bad credit, sitting on a house that I'm soon going to be losing money on if I don't get someone in there to make payments. That doesn't mean I should throw the first tenant I can find in there, but at the same time, I see that they all have some kind of issue and I can make it work for me or against me. By renting to them and charging a premium I'm making it work for me, vs. the house sitting empty is losing money over the long term.

This guy actually thinks about it the same way I do:

https://www.biggerpockets.com/blogs/3907/27426-why-i-love-bad-credit-tenants-and-they-love-me-back

Thomas S. · Answer

I would do the background especially the credit check . Look for 30,60,90 day late payments on the report. If they have any at all you know they are still not managing money. The vehicles scream wasteful life style. Contractors should never drive luxury vehicles.

Having said that I would rarely if ever give any applicant a second chance. You are basically gambling your business on a stranger. Where is the logic and business management philosophy behind that thinking. Unless you are a social worker you consider nothing except their likelihood and  ability to pay along with your ability to collect when they stop paying.

If everything does look ok when screening you tell him based on his past if he pays late for any reason you will evict him without a second chance. Then ask if he still wants to rent from you.

Thomas S. · Answer

So you posted a question on here only to tell us that renting to high risk applicants is your normal business practice and why you will be renting to this applicant. The one thing about gambling is that no matter how many times you win you will eventually lose. It is simply the way the odds play out.

As a final suggestion, since you already decided to rent to this guy, how about doing a credit check on his business. You may find his business is on the brink of bankruptcy due to supporting  his lavish life style.

Jack B. · Answer

So far, I've received good references from his landlord, etc. Never a late rent payment in 4+ years and no problems from them. His credit was actually fine, pretty good actually. He did have a minor criminal conviction for violence a few years ago (I once had a tenant with FIVE DUI'S from out of state. Never a problem from the guy). Her credit was still not great but no recent late payments. I do see the bad pattern of behavior HELOC after HELOC and credit cards galore for shopping from the old days. Seems tamer now, but a few hundred dollars of retail store credit card debt a year or so ago in collections on her account. Turns out she works after all so they are a 2 income household.

Next up is the visit to their place and the month to month lease and the funds. To top it off, I got to keep the holding deposit of the guy who was supposed to rent from me (HIGH income, baaad credit but for benign crap) but backed out after his landlord decided not to move back into the rental. I guess this will be a test case before the community. Hopefully this doesn't become an example of what NOT to do. Now let's see if he can come up with the deposit, first/last and the pet fee. Its almost 10K....

ETA: It was interesting to note that his company is actually booming again with new construction business not just renovations and fixes for REO's.

Marcia Maynard · Answer

@Jack B. Your second post is spot on. Seems you know the answer that will work best for you. We sometimes work with people who had trouble in their past. By doing so, we are often rewarded with good long-term tenants. If this couple is working to rebuild their business and rebuild their credit, they are likely to treat their tenancy with you with respect and are likely to adhere to the terms of the rental agreement. Sounds like the vehicles will fit in with the high-end neighborhood. You will need to take their application and run the background/reference checks before you know enough to make a final decision, but it looks promising to me.

Johann Jells · Answer

I have rented twice to people with past bankruptcies and had no problems, but I used my nose also. The vehicles turn me off too. Even if they were acquired before the trouble and it wasn't worth downsizing them, it shows a taste for high living and poor priorities.

"Contractors should never drive luxury vehicles."  I don't trust a plumber that shows up wearing loafers!  I know that Moe, Larry & Curly will show up to do the job.

Alexander Felice · Answer

Generally I'm in the minority with these threads because I like to give everyone a chance!

with this one though, I would pass. Admitted that he got hit hard during the crash (which was nearly 10 years ago now, every negative credit hit from that time should be gone) but then shows up with 130k worth of depreciating liabilities. Doesn't seem like he's learned his lesson that well

They are willing to pay extra because people who are desperate will almost always oblige in higher fees/costs. They may not intend to pay them and/or they habitually make poor financial decisions.

I would hard pass on this one. based on the information provided.

Mike Hanneman · Answer

I believe in second chances. If their references check out it could be a very good deal for you. You can always do a month to month lease so if they are late you can get them out quickly. Maybe do a month to month lease and say due to your history, if you are even one day late in the first year you are out!