Seattle, WA · Member since 2016 · 34 posts · 7 votes
Hi everyone. I have applicants (a professional couple in their thirties) to rent a single-family home I own. They seem like fine people - no reason to believe otherwise. Their combined income is 7x rent. Their credit scores are both over 700. They were once homeowners, but have been renting for the past few years. My one concern so far with their application, though, is their combined credit card debt, which is four times that of the average US household, and twice as high as the average for their income bracket (they also have student debt and an auto loan). From their credit report, it appears they are making regular payments and haven't been late with any payments on anything in several years, so perhaps they just put their wedding on the cards or something and planned to pay it off, but I don't know. Is this a red flag? Given all of the above, should I be concerned or is it probably okay? Thanks for your input!
Rental Property Investor · Cambridge, MA · Member since 2016 · 634 posts · 415 votes
6y
@Rachel H. I agree with what most everyone else has said. I want to mention one additional thing that I think might guide in the future. I would be cautious about using "national averages" as a way to try to qualify or disqualify someone. Someone that has $30k+ on a $342k income is a lot less risky than someone that has $8k on $50k-$60k (which is the national average household income). If you're going to use national average data, I would recommend using all of the other national data to provide as a benchmark. With that income, is it safe to assume that the property is in Seattle? If so, I would recommend using local data, since national data is not exactly useful on the coasts.
@Rachel H. If they are making their payments on time, it should be fine. If they have a higher income, they are likely living large and accumulating more debt; but as a landlord your main concern is will they pay the bills and take care of your rental.
Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes
6y
@Rachel H. that doesn’t make me worry. My concerns are debts that weren’t paid or charged off if it was recent and especially if it was property related (utilities, rent, etc).
7 times the rent just means that make a ton of money and spend a ton of money.
Whoa, whoa, whoa, people. Rachel, you've written that, "their combined credit card debt, which is four times that of the average US household..."
Debt. org estimates that the average household with a credit card carries $8,396 in debt. So this couple has $33.5K in credit card debt? That's a hell of a lot of credit card debt.
Rental Property Investor · Member since 2018 · 34 posts · 25 votes
6y
@Rachel H.
If they were perfect with their money they wouldn't be renters. As long as they pay all their bills and have been according to their credit check I'd rent to those people every day.
Whoa, whoa, whoa, people. Rachel, you've written that, "their combined credit card debt, which is four times that of the average US household..."
Debt. org estimates that the average household with a credit card carries $8,396 in debt. So this couple has $33.5K in credit card debt? That's a hell of a lot of credit card debt.
Correct, and it's actually a bit more than that. That's why I'm concerned. But their combined income is $342K/yr, which is also a lot. So....should I be worried??
Rental Property Investor · Shakopee, MN · Member since 2015 · 985 posts · 374 votes
6y
If their credit is good and they pay their bills on time I have no problem with that. Some people are just going to be lifetime renters. I know several people like that. Lots of debt and they like to buy nice things. I would only be concerned with how steady their jobs are especially with everything going on right now.
Sorry, Rachel, we're in territory I know nothing about. I've never rented to a household with a combined income above $75K and credit scores that high. It doesn't make any sense to rent instead of buy here with that kind of income and credit. The best I can offer is to tell you to verify that income carefully, and as @Brent Paul said, make sure that income is not about to be interrupted.
Sometimes with CC debt, you do run across reasonably smart, stable, functional people with that much. They're experienced personal finance people and they have it all on 0% interest balance-transfer cards. But the rest...they're almost always heading for a money disaster.
Whoa, whoa, whoa, people. Rachel, you've written that, "their combined credit card debt, which is four times that of the average US household..."
Debt. org estimates that the average household with a credit card carries $8,396 in debt. So this couple has $33.5K in credit card debt? That's a hell of a lot of credit card debt.
Correct, and it's actually a bit more than that. That's why I'm concerned. But their combined income is $342K/yr, which is also a lot. So....should I be worried??
No - not at all. I am more worried about a tenant who makes $140k a year and spends $4k a month on rent.
When you make good money you don't need to follow everything by the books to survive financially.
Rental Property Investor · Cambridge, MA · Member since 2016 · 634 posts · 415 votes
6y
@Rachel H. I agree with what most everyone else has said. I want to mention one additional thing that I think might guide in the future. I would be cautious about using "national averages" as a way to try to qualify or disqualify someone. Someone that has $30k+ on a $342k income is a lot less risky than someone that has $8k on $50k-$60k (which is the national average household income). If you're going to use national average data, I would recommend using all of the other national data to provide as a benchmark. With that income, is it safe to assume that the property is in Seattle? If so, I would recommend using local data, since national data is not exactly useful on the coasts.
Whoa, whoa, whoa, people. Rachel, you've written that, "their combined credit card debt, which is four times that of the average US household..."
Debt. org estimates that the average household with a credit card carries $8,396 in debt. So this couple has $33.5K in credit card debt? That's a hell of a lot of credit card debt.
Correct, and it's actually a bit more than that. That's why I'm concerned. But their combined income is $342K/yr, which is also a lot. So....should I be worried??
the fact that they make that much money and have debt and don't own a home is something else. I know home ownership isn't for everyone, but with that amount of income, they shouldn't have any debt.
Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
6y
Sounds like a professional couple that lives well and spends everything they make. And apparently, pays all their bills on time. Hell, this sounds like a couple I'd love to rent to, for a very long time, because they will never save money to buy their own home.
Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
6y
Nothing about this worries me. It appears that they have the means to pay all their bills.
They could be carrying credit card debt at a lower rate than other debt that they want to pay down faster. It could also be from purchases at 0% or very low interest. I did a home improvement project where one of the perks was 0% for 2 years. It showed on my credit report as a credit card with the max credit line at the project total, because the bank financing it structured it that way. Even though I had the cash to pay for the project up front, it didn't make financial sense. Therefore, I financed it and paid the minimum every month until paying off the balance the last 0% interest month. Anyone looking at my credit report would see a credit card maxed out with a lot of debt.
Redmond, WA · Member since 2017 · 31 posts · 22 votes
6y
Just a couple scenarios from my personal experience:
1) Sometimes I tend to pay only "statement balance". This way I always carry some balance of each credit card, but pay 0 interest. And if you have a bunch of credit cards (which is pretty easy if you have high credit score) - the total balance could be higher than usual.
2) Some banks send me "promo deals" - 0 APR for next 12-18 months, with 0 transfer fee. So I put a bunch of my expenses there, and put equivalent amount in CD for a year - basically doing rate arbitrage. Not a big deal, but it is free money anyway. The downside of this - pretty huge balance on that credit card, carried for a long time. Again, 0 interest paid (+ some CD interest earned).
So, if your applicants have a history of paying on time - I, personally, would not be concerned.
Hello all, thoughts on tenants that have a charge off for a large loan - like $65K? Does that automatically disqualify them from being good tenants that would pay the rent on time & not destroy the house? Appreciate any insights from experienced folks on here! Thanks!
Hello all, thoughts on tenants that have a charge off for a large loan - like $65K? Does that automatically disqualify them from being good tenants that would pay the rent on time & not destroy the house? Appreciate any insights from experienced folks on here! Thanks!
Did they disclose the debt on their rental application? What was their explanation?
It's not a good sign, but wouldn't be disqualifying for me. it does let you know that the applicant is comfortable refusing to pay an obligation.