Would you approve the tenant application?

18 Replies

It took a while to actually have someone apply for tenancy of my property. Due to Roofstock's rent guarantee, I'm not losing any money.

The property management is only giving me the following information about the applicant:

- Credit score over 575. No range provided.

- No evictions ever. 

- No outstanding rent payments to clear... this is because the applicant was recently a homeowner.

- Applicant recently sold their home. No outstanding/late mortgage payments to clear. No foreclosure.

- An income to rent ratio over 3:1

- Passed criminal background check

It's a 3 bd/2ba property and the applicant is a single adult. The PM cannot share if there are any minors will potentially be living in the property.

The reason for my post is because this is the most vague criteria that a PM has ever provided me. Usually I get a better idea of the credit score.

Thanks in advance for your thoughts. 

Updated 10 days ago

Tenant has been approved. Will update after a few months...if anyone is interested.

I used to screen tenants and I'd never be able to stand it if I just saw these types of reports.  It seems like you either need the ability to see everything, if you're being expected to participate in this decision, or you have a manager who just makes all the decisions.  But, I'd not sign off on agreeing to approve this tenant based on this info.

I don't know what Roofstock is.  But, why aren't you getting any applicants?  It seems like you need a better property manager or to manage yourself, if possible.

That information minimally covers the basics.  Some additional questions to consider:

The credit score is on the low end.  I'd ask why, how recent and how pervasive the late/missed payments have been.  Bankruptcies?  As a SWAG, this might be a divorce in which money disagreements led to missed payments and a forced sale of the property.  I'd accept that if it looks like the applicant has landed in a stable financial situation, but has trailing credit scores due to issues now clearly behind him/her.

I would also ask about employment and income history.  (ie. Is income to rent over 3:1 because the applicant just started a job last week or has been solidly employed forever?)  Sources of income?

Why did the applicant sell the property?  Where has applicant been living since selling the home and for how long?  Is there a referral?

A single adult applying for a 3BR home probably has children.  You can't make a decision on that, so I don't know that it matters.

No clear red flags.  I'd push the manager for more info if they expect you to make a decision.  Check your contract for what info must be provided.

It’s such generic info that it’d be hard to make an informed decision. After all, you don’t really know much about the applicant. Seems like they could be making only one dollar over the 3x income requirement, while being $100k in debt and having multiple accounts in collections and you wouldn’t know it.

I’m guessing the reason the info is so generic is because that’s where you set your minimum criteria (i.e. min 575 credit score, no evictions, income 3x rent, etc), so the PM is basically just telling you this applicant has met it. However, this tenant screening model would never work for me and I personally would not be able to pick a tenant this way. 

When I screen a tenant, I get their full/entire credit/background report because I want to see the complete picture. Things like how much they owe to creditors, payment history, do they have any accounts in collections, judgments against them, other addresses they’ve lived at (and do those match up to what they listed on their application), etc. 

With the info you’ve been provided, it’s just a crap shoot. So you just have to ask yourself, do you feel lucky?

@Luke Hadden , look at opportunity cost as well. Not sure how Roofstock model works because you mentioned you are not loosing any money. It is hard to have a PM company  screen your tenants because their interest is just to find you someone, not necessarily the best tenant. Since you are not getting many applications, I would also ask myself the last sentence that @Kyle J. posted. Think about what you have to loose if this guys defaulted. 

Another thing to consider. If the property is without rent for months and your pool of tenants is almost nonexistent (which is what it sounds like), then you have to evaluate the root cause of that. Is the price too high, is the area not safe or people don't want to rent there? Then you need to adjust and make a decision on that. 

@Luke Hadden

Let’s keep it simple. There are three main areas to look at when screening a tenant:

1) Credit/background report – the score itself tells you little without seeing everything else.

2) Income/employment verification – type of income and employment? How long? Is it stable? Are there cash balances sufficient to cover the rent?

3) Landlord and personal references – filter through these. Personal references are exactly that, so the fact that the tenant’s brother says they are great shouldn’t carry much weight. Applicant is a homeowner so likely nothing here I assume.

    Once these items have been reviewed, it’s time to make a decision: approve or decline. If you decide to approve the applicant and you’re on the fence (which you seem to be) how are you going to manage that risk? Here are a few ideas:

    Risk Management:

    1) Require an additional deposit – check with your local and state regs but assuming this is permitted, you could require a larger deposit, which has the cost of an eviction built into it, so in the event things don’t work and you have to evict the tenant, you are doing so with their money

    2) Require a cosigner – this person needs to be well qualified. 2 unqualified people does not equal 1 qualified person

    3) Accountability from your PM - does your manager charge you a leasing fee when they place a tenant? If so, what happens in the event the tenant stops paying rent (immediately that is, in fairness to your PM, life happens and they don’t have a crystal ball) and needs to be evicted? Is the following tenant placement fee discounted or free?

      Another note, and this is important – in the event that your tenant is moving in mid-month or anytime after the 1st and the rent needs to be prorated; never prorate the first month’s rent; always do it the following month. You have to assume that this may be the last cash you ever receive.

      For example, rent is $1000/month and the lease starts February 15th. Below are the options I recommend:

      • a) Rent amount due Feb 15th before keys = $1000 in certified funds
      • b) Or rent amount due Feb 15th before keys - $1500 in certified funds and the next payment isn’t due until April 1st

      What you don’t want to do is collect the half month of $500 in February for rent.

      Hope this is helpful.

      Jerid

      Pretty generic information. But the bigger question is: why do you feel the need for information when the Property Manager is the one screening the applicant?

      I manage 360 rentals. I processed 700 applications last year. If one of my owners called and wanted to know the details of an application before I could approve it, I would ask why they think they're more capable of making that decision than I am.

      There is no way a private Landlord is capable of screening better than me. If they want to ask about my system, I'll explain it to them and then I expect them to let me do my job. If the owner feels the need to be involved, I fire them and let them find someone else to micro-manage.

      Your property manager is giving you generic information, which is all you need. Frankly, they've given you more than what I give my owners.

      @Luke Hadden . So, you set the criteria, the PM found an applicant that meets the criteria, but the PM still has to run everything by you for final approval? I'm a little confused on your process, or why you have a PM. 

      BTW: it certainly sounds like a good applicant to me. If your criteria is credit score above 575, and they have that, does it matter if it's 600 or 800? 

      @Anthony Wick

      It’s the PM’s criteria.

      But you’re right. During interviews of the PM, I could be more understanding of their criteria.

      In this specific case, I approved a PM, they were purchased but the current PM, I was locked into working with the new PM if I wanted to maintain my rent guarantee.

      I’ve approved the tenant.

      Good learning for me here on how to screen PMs in the future. Not worry about screening potential tenants.

      Thanks everyone

      @Luke Hadden If you hired a PM, why would you need the info on a prospective tenant? That's the PM's responsibility. Micro managing defeats the whole purpose of scaling. Once you delegate responsibility, you must have trust in who you hire but more importantly trust in the decision you made. Good luck.

      I agree on letting the PM do their job if you have a history with them. Separately though, why can't they tell you how many people are going to be living in the property? I've never heard of that before. 

      @Luke Hadden

      I’m interested if you have any ideas why it took a while for your property to rent? Also, can you find out what size house the applicant had before?

      A list of possible reasons for this situation could be... divorce....downsizing...empty nest... recent move... death of a significant other...

      Having low credit is the scary part. But not always bad. A healthy problem could’ve made big changes quickly in someone’s budget. Divorce can screw things up quickly too.

      Since you have a vacancy plan, I would wait. If you need someone in there, I would accept them.

      Either way, come back next year and tell us what happened!

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