No one with good enough credit
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votesI think @BOB CRANEY hit the nail on the head its the area .. my folks i deal with in these areas.. fico is not a criteria.. its
do they pay their cell on time.. are they felons.... you have to triage the bad credit or sell the house.
600 up probably does not want to live in that area. I suspect thats whats happening.
78 Replies
- Realtor · Hialeah, FL · Member since 2017 · 24 posts · 11 votes8yLook at why their credit scores are low, if it’s medical, student loans, or have a good reason then continue with screening. Make sure they rent is no more than 33% of their income and they have no criminal history, collect 2MO security deposit and you will be fine. If they fail to pay you have the security deposits you can use to get them out. Just make sure that verbiage is in your lease agreement.
- Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes8y
@Luke H. drop this credit score requirement. I assume you are in a lower income neighborhood, so credit score of 600 will be hard to find. You have likely passed on some really good tenants already. With my properties that are in C areas, I don't have a credit score requirement. I look for liens, judgements, etc. Anything that they owe gets counted against their income.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes8y
@Steve Babiak you are right, for some bad applicants they just apply as many places as they can. There are plenty of mom and pop landlords that don't do credit checks, so they just keep applying until someone accepts them. Some landlords don't even verify income or call references.
I rejected a tenant with bad credit and low verifiable income, then later found out my friend rented to her. Most of her income was cash from tips. He never checked anything because he had a good feeling about her. It turns out she was a good tenant that paid on time and kept the house clean.
Not properly screening can turn out really bad or you can get lucky. I prefer to not rely on luck. As far as gut feelings, I trust when I have a "bad feeling" and verify when I have a "good feeling". The best scammers leave you feeling warm and fuzzy.
- 8yLuke H.Real Estate Investor · Dallas, TX · Member since 2013 · 388 posts · 174 votesOP
Hello everyone,
Thanks to all for feedback. This area is a C or D and I suspect that many people will not qualify with at least 600 credit score. Though I do think it is a good idea to have this requirement because it saves me time for people that would otherwise just waste my time.
For these potential tenants I plan to get full credit reports, 2 months pay stubs, and verify past rental history and current work for both adults.
They said their past issues were for unpaid phone bills, and credit cards.
The current application processing service I use does NOT give me a full credit report. They just provide a approve/decline based on the credit score I pick.
Will you guys give me tips/how to's on doing my own due diligence? Example: I call the current landlord, but how do I know I'm not talking to a friend of theirs?
How to order their full credit report?
Services you use?
Thanks to everyone,
- Rental Property Investor · Madison, WI · Member since 2013 · 629 posts · 339 votes8y
We've used Accurate Credit or Cozy. Both give the details we need.
We have a 700+ credit score preference, 650 score minimum. But our properties are in A/B areas and our tenants rent from us while they are saving up to buy a house- the most common reason our tenants leave us.
A note on scores themselves though. We personally both have had scores well over 800 for years and years. 100% repayment. Never late on a single one. But we've been taking advantage of 0% credit card promotions for the past couple of years for a big remodeling project that we will eventually pay off with a HELOC. Special case, I know, but I mention for the purposes of illustration.
Because we are now using 40% of our total credit line, our scores have recently dropped to the low 600s, even though our payment record is still perfect. So the scores themselves alone should always be interpreted in the proper context and with caution. You probably have some fine tenants in your pool. - 8yScott TrenchPro MemberRental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
Where are your leads coming from?
I've found that applicants that apply online, through zillow, postlets, trulia, or craigslist are overwhelmingly better qualified than the folks that walk past the sign in the yard at my properties. I get a large number of calls when I post signs in my yard, many of which are a complete waste of time.
I can immediately screen out dozens of people incapable of writing a semi-coherent email message at my convenience once or twice per day, which allows me to not waste my time with large numbers of unqualified folks.
A couple of suggestions:
1) Make a GREAT online ad, with at least 10 high quality, well-lit pictures of your property on a very nice day. Provide as much information as possible.
2) In your ad, make it very clear what your criteria are, in an effort to STOP unqualified tenants from even applying. 48 unqualified applicants is WAY WORSE than zero applicants, because your time is wasted. If you get zero applicants, consider if your rent is too high.
3) Consider getting rid of the sign in your yard, if that's the primary source of these leads.
And understand that you might be in trouble with this property. The economy has been booming for nearly a decade straight. If no applicants are qualified for your property and you are having this much trouble now, in the best of times, that is not a good sign for when/if the market turns. Maybe this isn't the neighborhood to be buying a bunch more in.
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes8y
Originally posted by @Sam Shueh:
Stopped showing homes without a preapproval letter ready. Save yourself some gas and frustration.
You sound like you haven't paid attention to the actual discussion in this topic - a tenant looking to rent a place isn't going to have a "preapproval letter". So save us some time and frustration by making sure your posts actually make sense for the topic being discussed.
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes8y
Originally posted by @Luke H.:
...
The current application processing service I use does NOT give me a full credit report. They just provide a approve/decline based on the credit score I pick.
Will you guys give me tips/how to's on doing my own due diligence? Example: I call the current landlord, but how do I know I'm not talking to a friend of theirs?
How to order their full credit report?
Services you use?
Thanks to everyone,
I use TenantReports.com - but you will still be limited to a scoring model similar to what you have now because to get full credit reports you have to submit to (and pay for) an office inspection where you keep application records.
Tenant rental history is checked in a number of ways to be rather thorough. First I ask for the landlords where tenant has resided in my application; I go back at least five years, and if that does not get at least two landlords then I ask for a previous landlord. Obviously tenants who have never rented, have rented only from one landlord, or have rented less than five years will be exceptions that you have to deal with. And I get the tenant applicant to sign an authorization form that allows me to contact the landlords. In addition to that, I am getting the tenant's address history from their credit report to see if there is any inconsistency; I will also contact any additional landlord found this way. Now, I don't just take the contact information that the tenant applicant has given, because the professional tenant will give contact for a friend who will serve as a "favorable reference " - I insist on getting the real information for the real landlord. So I look up property addresses in county tax records to see who is the owner, and dig as far as I need to to get to the real landlord. If I am pretty certain I have the real landlord, I just try to get questions answered. But sometimes you can't be sure, so you ask questions that have a slight error in them (give a rent that is incorrect, and lease start date that is incorrect for example) - a friend will just say that the errors are correct, but a landlord will comment that the facts are actually different.
That is how it is done. Don't take any shortcuts or make assumptions that could be your downfall - tenant screening requires that you can get all these little details to fall into place and all be consistent and in agreement. And the good news is that the good honest tenants will be quite truthful, and as you verify the facts such an applicant provides you begin to gain confidence in them being decent. - Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes8y
Originally posted by @Scott Trench:
Where are your leads coming from?
I've found that applicants that apply online, through zillow, postlets, trulia, or craigslist are overwhelmingly better qualified than the folks that walk past the sign in the yard at my properties. I get a large number of calls when I post signs in my yard, many of which are a complete waste of time.
I can immediately screen out dozens of people incapable of writing a semi-coherent email message at my convenience once or twice per day, which allows me to not waste my time with large numbers of unqualified folks.
A couple of suggestions:
1) Make a GREAT online ad, with at least 10 high quality, well-lit pictures of your property on a very nice day. Provide as much information as possible.
2) In your ad, make it very clear what your criteria are, in an effort to STOP unqualified tenants from even applying. 48 unqualified applicants is WAY WORSE than zero applicants, because your time is wasted. If you get zero applicants, consider if your rent is too high.
3) Consider getting rid of the sign in your yard, if that's the primary source of these leads.
And understand that you might be in trouble with this property. The economy has been booming for nearly a decade straight. If no applicants are qualified for your property and you are having this much trouble now, in the best of times, that is not a good sign for when/if the market turns. Maybe this isn't the neighborhood to be buying a bunch more in.
I agree that yard signs attract a diverse crowd. That is because most yard signs don't contain price or property details. That opens the door to lots of questions and unqualified tenants (place rents for $1200 and their budget is $800 doesn't work).
In my experience yard signs are a great way to attract long term tenants, because you find people who want to live in the area. Someone is driving by to their friends house, work or a school and finds the perfect location. Most people I rent to from yard signs tell me they were not planning on moving, until they saw the sign.
I have my yard signs ring into a Google voice that goes straight to voice mail. The message gives property details. Price, number of rooms and availability. At the end of the message I refer them to view the property on Zillow.com for pictures and more details. I tell them to contact me through Zillow if they are interested in viewing the property.
I have also seen the Zillow URL put on a yard sign and some property management companies have a "text to receive information" number on the sign. There are lots of ways to filter people from yard signs, but skipping them all together is a mistake in my opinion.
- 8yScott TrenchPro MemberRental Property Investor · Denver, CO · Member since 2014 · 2k+ posts · 6k+ votes
@Joe Splitrock Wow - this is way better than what I was doing. I am going to copy you and do this from now on. What a great way to still invite quality applicants, but to screen out all the callers that are unqualified, without getting a million phone calls. Thanks for the brilliant and practical way to get the best of both worlds!
- Real Estate Agent · Astoria, NY · Member since 2016 · 60 posts · 55 votes8y
This is what I would tell one of my own clients: As many here have already stated, it's not about a number, it's about understanding the overall picture. For sure, a score below 600 is a risk -- so the questions are, what accounts for that score, how do you account for that risk and hedge against it? If 48 applicants all have low scores, it's clear that you're unlikely to get a unicorn with a 750 score. I would suggest several things:
- Don't trust applicants. Run your own numbers. There are tons of services online that allow you to run credit checks and background checks on applicants. A tenant-provided FICO score is both unreliable and doesn't give you the whole picture. Look at their score AND history and look at the root of the low score, as well as their payment history on all their accounts. Did they default on student loans 5 years ago (and if so, why?), or are they maxed out on their credit cards now, and barely scraping by? Those are two very different things.
- Institutional guarantors. There are several services online that the tenant can sign up for that will serve as a guarantor for renters. Kind of like an insurance company, they use the pool of money from their customers to pay out in the case one of them runs into issues. This benefits you in that you don't have to worry about an individual guarantor/co-signor and their financial qualifications, or chasing them down in the case of a default.
- Several months rent up front. Charge 3 to 6 months of rent up front to protect against late payments and cover you in the case you need to evict. Evictions can take some time. Charging the money up front gives you a cushion if the tenant stops paying. Of course, someone with a 500 score is unlikely to have a pool of cash sitting around either.
- Larger Deposit. I like this strategy less, because a security deposit is ostensibly a refundable amount for the purposes of damages -- not for rent. Nevertheless, it's an option.
- Individual guarantor. This person should have financials that allow them to cover their own housing costs PLUS those of your tenant. In NYC, most landlords require tenants to have annual earnings 40x the monthly rent, and they require guarantors to have annual income of 80x the monthly rent, because the assumption is they have their own housing costs in addition to the ones they are guaranteeing.
Finally, look at doing deals in the future in areas that have a different tenant base. Getting a cheap deal in a war-zone or area with low employment does you no good if you can't fill the units with good renters, or anyone at all! Remember that the ultimate goal is cash-flow, not getting a cheap deal.
- Rental Property Investor · Tyler, TX · Member since 2018 · 32 posts · 23 votes8yWe don’t pull a credit score..I would say most people that have stellar credit are purchasing a home.. all of our rentals are in a more rural area so that is the case. If you are in a big city, your people that are renting with good credit is probably higher due to the fact of the younger working classes in those areas. We have a lot of single moms with bad credit, but they know they have to keep a roof over their kids heads. Some people disassociate the credit card repayment, which generally screws the credit, bc there are no real immediate physical consequences, like being evicted..so we get references, job hx and 3X the income in earnings. We have only had 4 evictions in 5yrs out of 65 doors and I could have told you it would happen before we signed the lease..bad judgment on my part. I’ve learned my lesson, if my gut tells me something, I listen.
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes8y
@Joe Splitrock - the only posts I have seen that say to avoid "for rent" signs come from people who have rentals in crime stricken areas, where the sign serves as an invitation to criminals.
I like your idea with a voice message that steers to an online ad; I would recommend to use a link shortening service like bitly to keep the link given short.
And now I will give a big tip on using "for rent" signs to augment calls coming in. I learned this from another landlord - put a "for rent" sign in front of every property you own in a neighborhood where you have a vacancy, even at the occupied properties; tell tenants at the occupied properties that your property around the corner or on the next block is vacant and you are looking to have the phone ring more. Some people will call on each sign, some will only notice a sign where you already have a tenant but you still get their call and explain where the actual vacancy is.
- Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes8y
@Amanda Hillard even if you don't rely on credit score, I would still recommend pulling a credit report. Credit report contains important details:
- Is the reckless spending behavior in their past. You can see if the behavior is recent or from years ago.
- Type of debt is important too. Medical bills are different than a judgement to ABC Property Management. Any landlord judgments are a show stopper for me.
- Address history is probably the most important thing. You can see previous addresses. You want to verify their previous addresses match their references. If there is a mismatch, they could by lying about their references.
- Judgement can be a problem, because it means debt collections usually. Debt collectors can empty out bank accounts so your tenant doesn't have rent money. The bigger and more judgments there are, the more you need to look out.
I see many landlords fall into the trap of just thinking, well since they are renting they must have bad credit. That isn't true. Many people rent who don't have a reckless spending problems. The details tell a story. I am not saying you shouldn't rent to someone with bad credit, but know fully what you are getting yourself into by checking out the detail.
- Investor · Lumberton, TX · Member since 2017 · 146 posts · 93 votes8y
@Luke H., I'm in Beaumont down the road, and while I do wholesaling and flips right now, several in my investment group who are mainly buy and holds have said that 580 is the new 680 especially since Harvey. They are looking deeper into the why's of the applicants score, and as long as there isn't a big red flag they let them in. As far as I know, these handful of investors have had no problems as of yet.
- Developer · Meridian, MS · Member since 2016 · 3 posts · 0 votes8y
It has a lot to do with what you want to accomplish. Thomas S said "A vacant unit is hands down better than any bad Tennant" He is right if you are not carrying a note and need the cash flow to survive. I myself have good luck with Background Check and Job History on the application. Most of my rentals are in states with good eviction laws so that helps a lot also.
- Rental Property Investor · Tyler, TX · Member since 2018 · 32 posts · 23 votes8y
joe splitrock
I agree with all those points. I might even change my way of doing things based on this!
I can see on our county judicial records, judgements made against people, evictions, but it’s limited to specific counties, so if I have someone who is new to the area I may not see anything.
Thanks!
- Phoenix, AZ · Member since 2018 · 35 posts · 15 votes8y
What about if it was the other way around? Good credit 700+ but low income, how would that work?
- 8yLuke H.Real Estate Investor · Dallas, TX · Member since 2013 · 388 posts · 174 votesOP
Update: I emailed the potential tenant that I wanted to get full credit reports, pay stubs, and verify rental history and I have NOT heard back. This from someone that was emailing me everyday.
Since the service I use doesn't give credit report I will start looking at other services that have been mentioned. I use to do my own background checks, but stopped since using a service and using the service as the 'approval/denial' made saying no much easier / hassle free.
I'm not sure that 580 is the new 680 in terms of credit, but I do believe that people with higher credit want to maintain and protect it, including living with lease rules and leaving on a good note.
- Humble, TX · Member since 2018 · 5 posts · 0 votes8y
I would do your due dilligence on their rental history. If their past landlords have no complaints and they always paid on time then they might be worth a chance.
- Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes8y
Originally posted by @Marvin Ong:
What about if it was the other way around? Good credit 700+ but low income, how would that work?
Marvin - that won't work well. My income requirement is the tenant's gross income (if a W-2 worker) must be three times the rent. If they don't earn that much, eventually they reach a point where they can't pay - then they become a future eviction.
- San Antonio, TX · Member since 2015 · 20 posts · 6 votes8y
When it comes to screening applicants, set your criteria and screen to that. Always screen folks consistently. When we do our screening, FICO is a small part of it, but not the end all be all. I care more about the last 3 years of activity, and don't put as much weight on medical bills, because 1 really bad day in the ER can ruin you if you're not really well insured.
If you've shown it 47 times, and don't have any good applicants, could be a few things.
1. Is it clean AND move in ready? If not, you'll attract bad applicants just hoping that you'll overlook their issues just to get a tenant.
2. Is it priced appropriately for the area? If not, you'll attract bad applicants just hoping that you'll overlook their issues just to get a tenant.
3. When you show it, are you confident in front of the prospects? If not, you'll attract bad applicants just hoping that you'll overlook their issues just to get a tenant.
See where I'm going? If you want, do a walk through video of the home, upload it to youtube and send me a link. I'd be happy to watch it and see if I can offer any help. When you do the walk through, narrate it just like you would if you were showing it.
Good Luck!
- Savannah, GA · Member since 2018 · 23 posts · 4 votes8yHonestly, I was in a similar predicament as them. I had a company take a chance on us and they say we were one of their best tenants. No complaints to fix stuff and money up front. Some people still believe cash is king so they don't worry about anything with credit. If they don't have any recent inquires that may be the situation. You could wait for someone else to come along that may be good as well, but if you still have a mortgage on the property it'll be due in a week or 2. This is just from my personal experience.
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