Should we accept this Tenant??

Question

Good Morning,

We have purchased our first rental and it's been on the market about a month, roughly 2 weeks with updated pictures since we repainted it. The home is fairly new, 3 years old. We have listed the property on MLS, Facebook Marketplace and have gotten lots of questions but majority are not qualified. The property has been show about 6 times. We have realtor who brought us a potential tenant that is very interested in the property but.... they recently lost there house to foreclosure. Now I know that should be a deal breaker but they were very upfront and from the looks of it they let someone in there life that scammed them badly. Down to changing the way bills were paid, stealing mail ect. When i review the credit report everything looks good, all paid on time till December 2017. It looks like the house was just sold at an auction at the end of June. The homeowner tried to stop it, wired money to bank but it was sold that day.

Her income is more than enough to cover the rent (our requirements were 3x rent, 600 above credit score, ect) there is nothing else negative on smartmove report. Her credit score is 595 on the credit report. We are awaiting paystubs, police report (she offered to provide). This property is in Texas.

What would you do?

Thank you in advance for taking the time to offer advice.

Nathan Gesner · Answer

A lot of sketchy applicants will offer a longer lease to help ease your nerves. I don't recommend it. I have 300+ rentals and in my experience, over 80% of tenants with multi-year leases fail to fulfill them.

Your biggest mistake is that you've set standards and now you're already trying to circumvent them. If you want a credit score of 600, don't accept 595. The bigger red flag is their foreclosure. Almost every applicant that comes to me with a foreclosure story has someone else to blame: medical bills, divorce, identity theft, etc. If you believe that story, you'll believe all the other stories they will sell you in the future.

Set standards and stick to them.

Jennifer Kobasic · Answer

I’m not getting aggressive I’m trying to evaluate a potential tenant. Looking for feedback not judgement. Thank you!

Jennifer Kobasic · Answer

Also I don see any utility companies, cell phones etc on the credit report. I have her husbands credit report and he has nothing on it, No credit. He’s self employed. Vehicles they now have are all paid for.

Jennifer Kobasic · Answer

Thank you Kyle, they had everything paid then in December there was only two account one being a mortgage that was not being paid. She didn’t have a ton of lines of credit open and what she did have looked paid until December when this issue began. She now has 7 items in collection. All the collection accounts have an open date of 1st quarter this year. I’m assuming open date on the collection piece of the credit report means that’s when the collection was opened not necessary when the account is open.

Kyle J. · Answer

I have a different view on this.  I don't have anything in my rental criteria that excludes applicants with previous foreclosures.  In fact, I've had two previous tenants that came to me directly after losing their homes to foreclosure and I accepted both of them and never regretted it.  They both turned out to be great tenants.  One is still with me after over 5 years, and the other also stayed for several years until they were ultimately able to rebuild their credit and become homeowners again.

Both always paid their rent on time (even early) and - since they had previously been homeowners (as opposed to life-long renters like most applicants) - they knew what it was like to actually own and care for a home and they took great care of the home and treated it like their own.

I know in the case of my two tenants who had foreclosures, they just had really high mortgage payments that they couldn't afford.  And since they weren't going to have those mortgage payments anymore, and the rent payment was going to be significantly lower than their old mortgage payments, I wasn't concerned at all about their ability to pay.  And it was never an issue.

Plus, since their credit is usually shot after foreclosure, I look at it as a good opportunity to have them as a tenant for a while since they likely won't be buying again for at least a few years.  And that's a good thing since we all know turnover is a cashflow killer in the rental business.

Speaking of credit, it sounds like you're worried about their score being a few points lower than your minimum score requirement.  I don't even have a minimum score requirement because I try to take a more holistic view of the applicant rather than just focusing on a number, so that wasn't an issue for me.  But I'd suggest looking at their credit report and not just their credit score and see if you can figure out why it's the score that it is.  For example, have they paid all their bills on time except their mortgage payment?  If so, I think they'd be a safe bet as a tenant since they won't have the mortgage payment anymore.  On the other hand, do you see late/non payments and collections across all their accounts (i.e. cable, cell phone, credit cards, car notes, etc)?  If so, I'd pass because that shows a consistent pattern of poor financial behavior and you can bet you'll soon be added to that list.

The point is, you should look at more than just the score.  But the right applicants with foreclosures can make great tenants.  Just my two cents and something else to think about.

Good luck with whatever you decide.

Walt Dockery · Answer

If doing additional move in costs, rather than collecting 2x the security deposit I would collect last months rent if you aren’t doing so already. First month, last month, and security deposit to move in. That last months rent protects you somewhat in the event they need to break the lease.

I definitely would not do a 2yr lease, that is less attractive to you than 1yr not more, and I certainly would NOT offer or agree (handshake or otherwise) to not raise the rent at the end of that year.

Will Gaston · Answer

@Jennifer Kobasic a two year lease is attractive but only if the tenant fulfills their obligations. They have already shown a recent history of not doing so (i.e. their mortgage).

The double deposit is enticing because it increases skin in the game but I'd still rather have a highly qualified applicant at a lower price. Say what you want about credit scores but there is a reason they're used everywhere in our society.

Jennifer Kobasic · Answer

She is willing to pay double deposit and wants at least a two year lease.

Thank you to all of you who commented and continue to share your thoughts on this. We really appreciate it.

Jennifer

Should we accept this Tenant??

Most Popular Reply