Renting to someone with cash but no credit history

13 Replies

I am showing my first rental property to rent.  I had a family come by that seems like they would be a good fit, they are interested, filled out an app and are ready to move in soon - only problem is they recently moved here from out of the country.    So they told me they have basically no credit history here.  They indicated they have assets however, and the husband indicated he could, say, pay 6 mos rent up front.  Would be a 12-month lease.  I have not run credit/backrgound yet but will shortly via mysmartmove, they told me about the lack of credit history up front.

Am I missing something, i.e. am I crazy to consider to rent to this tenant given their ability to pay several months up front?  I have had the opposite problem with many other applicants, i.e. people who claim high income on the application but can't front move-in costs of first month, last month, and security deposit.  I am big on the idea of financial independence and generally hold the belief that assets trump income and potentially lack of credit.

As part of the check process, should I ask to see bank statements or a proof of funds letter from a bank, in addition to the smartmove check?

Do watch the movie "Pacific Heights"!!  However I have just completed a two year lease with a similar Tenant from Brussels.  What he did was to get his company that had transferred him to Orange Co., CA

to contact my Property Manager with backup.  They didn't pay 6 mo in advance but did pay every month 2 days early.  He, an engineer, also did many small repairs, just asking for materials to be covered.

Check his job.

Cheers,

Buddy

On the lending side, we sometimes (rarely) use 'alternative credit.'

  • Prove that you've payed rent on time for 12 months. This shows a pattern of paying for housing, which is very relevant to you, that isn't often captured on a credit report.
  • Prove that you've paid one or another other bill on time for 12 months. Cell phone, car, etc. Same basic theory as above. 

Remember when looking at foreign rent checks and bank statements that they don't do DD/MM/YYYY in most countries for dates. 

Unless this is your only applicant likely to apply I would pass immediately.

You have no idea what the source of the money is, possibly drugs, and take a very high risk accepting cash in advance. Your state regulations my make it illegal to accept any more than the allowable deposit and since the money technically remains the property of the tenant they legally may demand it be returned at any time. If your state does allow you to accept cash advances you will be required to hold it in a separate bank account to withdraw the rent from monthly.

Thanks for the replies

@Thomas S. no this is not my only applicant, but most of the other applications have hair on them in one way or another.  I.e. people who need to sell a house, a woman going through divorce who's alimony isn't finalized and old house needs to sell, two people with great jobs and income but who can't front the move-in expenses (which raises red flags ... if move in expenses are a problem sounds to me the person is living paycheck to paycheck which even w/ good credit means they are one job loss away from disaster), couple people who say they want it but don't want to move in for a couple months etc.  

He does not have a job here, says he is an investor w/ businesses in his home country.  

I live in FL, will check w/ my RE attorney monday about how an up front prepayment is treated.  

He does have references who live here, not sure if any will co-sign for him, or how comfortable I even am w/ a co-signer.  

I guess my question is, does 6 mos cash up front negate the other issues?  Someone can have no job and no credit and be a multimillionaire.  To Thomas S point, I would like to make sure he isn't a drug dealer.  He has sent a copy of criminal background check from his home country saying no records of criminal history found ... not sure how much weight that carries.

Your wasting time and effort trying to make applicants fit. If screening any applicant is not a straight forward process you simply pass and keep on looking. Trying to make questionable applicants fit is a sign of desperation. Not good. 

Well, I certainly am not desperate, and don't think asking the question here or generally a willingness to consider cash up front as a sign of desperation.  Credit scores exist to serve a purpose, and if someone can pay cash for something that purpose is mostly moot, IMHO.

Is it a waste of my time?  Maybe, since this is a learning process for me I'm ok w/ that to some degree.  Rest assured I have not spent a whole lot of time on this one applicant, and continue to market the property.

From what I read online, FL allows prepayment but does require it be held in the security deposit account.  I don't have a problem with that.

Keep in mind that once they move in they can demand that the money be returned to them.

Cash is not a alternate for good credit, it is a bribe that questionable applicants offer to hobby landlords in an attempt to divert them from their screening standards.

That's interesting, and is something I'll ask my RE attorney about.  Regardless of what happens with this applicant, understanding how prepaid rent is treated in FL is worth knowing.  If it's something they can turn around and demand back after moving in, yeah, pass.

Originally posted by @Thomas S. :

If they decide to leave after 2 months it is their money and must be returned. FL probably does not have regulations covering the issue.

How am I left off any worse than if a tenant who didn't prepay breaks the lease and leaves after 2 months?

To update this, I did not end up renting to this applicant.  Upon turning in his application, issues were a lot more than lack of credit history - lack of employment, no landlord or employer references etc.

On the issue of prepayment, according to my attorney there is advantage to prepayment and certainly is no greater risk to a tenant breaking a lease than if they didn't prepay.  So this fear that he would "move in and demand money back" does not seem a rational one, at least where I am (that's not to say I'd rent to someone unqualified, but prepayment certainly does not seem to me a negative).  My attorney also had the advice that if I were to accept prepayment, make it for the last x months of the lease rather than the first, i.e. if he wants to prepay 6 months rent that's great, that applies to months 7-12 on a 12-month lease and rent would be due on the first of the month for the first 6 months as normal.  

Ended up renting to a well qualified tenant who moved in last week.  I had a lot of interest in the property, so was able to be picky w/ a few strong applications coming in after starting the thread and in the end did not bend on my application requirements.  

Was it a waste of my time?  No, not really, at least no more so than the rest of this process has been, I know a little about how prepayment works, how I would handle it if it were to come up in the future.