First rental and screening. How to proceed?

Question

My wife and I are looking to rent out our first property. We've been advertising for about 2 weeks and  after screening out several who were obvious they wouldn't be a good match for us for various reasons (bad credit, don't earn enough income, don't want a 12 month lease, etc.) we have our first prospects that look like potential tenants (husband, wife, 2 young children).  They pass all of our minimum requirements except income.

Their monthly income is only about 2X monthly rent but husband was injured last year on the job and was granted a workman's comp settlement and as such is sitting on a pile of cash. He led us to believe it was enough money to live on for a few years while he completes his engineering degree. Before I knew of all this and I discovered his income was low during the pre-screening process, I informed him this wouldn't be a good match. That's when he informed me of his accident and current cash situation and offered to pay last 6 mos. rent along with deposit and such.  Their other bills look good so I'm wondering what the good folks at BP would suggest? We showed them the property and they seem like a great young family. I was thinking about proceeding with the application, verify his cash situation via recent bank statement, etc.  Would you go so far as having him get a guarantor (cosigner) for rent? Any other suggestions?  Thanks in advance for any help!

Ayodeji Kuponiyi · Answer

@Dean C. I agree with @Justin Fox stick to your criteria and never try to accommodate. You have a criteria for a reason, as a guide. Don't let emotions cloud your judgment.

This is a business, no emotions, simply black & white. With that said, I'm cautious of people who offer a couple months rent in advance. The end result is never good.

As Thomas S. pointed out cash doesn't mean anything especially if they end up using it for something else. Best of luck and keep us updated on your progress.

Bryan O. · Answer

Hi Jd. I hear this strategy brought up fairly frequently. Where would you find this 3rd party escrow account? Can you just do it at a bank? Do you need to sign some kind of agreement regarding release of funds, etc.? Or just tell the person setting it up what you want?

Dean C. · Answer

Interesting alternative. Thanks for the input Jd.

JD Martin · Answer

I disagree on the value of the lease as stated above, but would concur with everything else. You could also have them pre-pay one year into a third-party escrow account that would release the rent to you in a timely fashion. Alternatively, or in conjunction, you could have them pre-pay first and last month's rent and deposit, and escrow the rest, such that you are always at least one month ahead of them should eviction become necessary.

Dean C. · Answer

Great advice here. Thanks for the input.

Thomas S. · Answer

Cash is no indication of ability to pay rent. They could easily turn around a buy a new car or pay medical bills with it. Base your screening criteria only on regular income.

If you decide to accept them do not take any pre payments or additional deposits. Treat them the same as any applicant but I would strongly advise against signing a 1 year lease. Do a M2M. A long lease only protects the tenants and has no advantage to a landlord. Tenants may choose to leave when ever they wish regardless of the term of the lease and landlords must chase them down or abandon the loss. The advantage of a M2M lease is it gives the landlord more control over the tenant. If the tenant is not working out you get rid of them rather than having to wait to the end o  f the lease.

Dean C. · Answer

Thanks.

Justin Fox · Answer

@Dean C.

I had a woman come look that was a teacher, recently quit her job but said she had 'a lot' of savings to pay rent.  I decided to stick to my criteria and deny her.  I feel like I have criteria for a reason, to get what I believe will be the best tenant possible.  I say stick to your guns on the income requirements.

If you were considering renting to someone who only made 2x the income, what about the previous applicants you denied?