Contractor · Mobile, AL · Member since 2019 · 47 posts · 32 votes
I have a prospective tenant that has a credit score of 627 we require a 650 score. I have been one to stick to my guns and had people to get co signers. But then he offered to pay the entire years lease up front. Is this a good idea or bad idea.
I would take 1 years rent upfront if it's legal in the state. Credit score is not the only factor we look during screening. We also review no. of year on job or in a profession, etc. 23 points in not a big difference. 1 years rent upfront during this time. Please send your tenant to live in PA.
I would take 1 years rent upfront if it's legal in the state. Credit score is not the only factor we look during screening. We also review no. of year on job or in a profession, etc. 23 points in not a big difference. 1 years rent upfront during this time. Please send your tenant to live in PA.
The only problem with getting a year's worth of rent up front is that if they do something that the lease does not allow judges are not likely to evict them. So if your tenant moves in ten extra people, you are stuck, or if your house becomes a grow house, same thing. So make sure you really know this person, check back several rentals for references and make sure you call the owner of the past properties from public phone numbers and checking the name off tax records.
@Mark Perea One year rent up front can be a great deal..............but it is also a huge red flag. Bad tenants know that waving green stuff under a LL's nose blinds them to everything else the prospective tenant might be hiding. They might be renting your place for someone else, they might want it to cook meth, they might bring in vicious dogs. They might not allow inspections, and you won't be able to get them out. Could be all of that or none of that.
Point is 10-15k upfront is not that big a barrier to someone who has serious ulterior motives. Your only defense against a bad tenant is thorough screening. Land lords who do not screen thoroughly will lose their properties because of their lack of due diligence, and today's crazy politicians.
Cons: if they are your worst nightmare in month 3 it’s gonna be a lot more difficult to get rid of them if they’ve already paid for the next 9 months.
Just do a good tenant screen. IMO if I were a renter I’d never want to do this, ask yourself why they would. The answers probably will want to make you move on to the next lead you have.
@Mark Perea I'd run the application and background check to see what turns up. Usually, it's the past landlord history (and sometimes the present one!) that can tell you a lot about prospective tenants. Also, try to see what kind of personality they have in terms of how they communicate and expectations (low maintenance vs high maintenance). Good luck!
@Mark Perea I think that him paying upfront might not be such a good idea. It would definitely make things messy if the tenant violates or breaks their lease agreement. Also, each state has varying rules regarding upfront rent payments, so I would double check your local and state laws if you're considering it.
I'd try to ask questions to see why the credit score is that low. I have a number of friends who've lived abroad for years and most of them have very low credit scores because they rarely use credit cards and mostly have just student loan debt. When they move back, some with foreign husbands, it's hard to get a place to live because of this. They have the money and either jobs or a sponsor who is legally on the hook for their expenses (immigration is expensive!). I know some have had success paying a year up front or agreeing to pay a bit higher rent for the first few months.
Also, they could be following the Dave Ramsey plan and aiming for a zero credit score.
Here's the problem with that. What if, for some reason, the tenant doesn't stay the entire year? Depending on the reason why, you could be in court trying to keep the pre-paid rent. My suggestion would be to use an escrow company and an auto payment system where the tenant's rent is deposited into escrow, from an autopay system, one month in advance.
No! By accepting a years worth of rent up front, you will be giving your tenant ALL the power. You are letting them know they can persuade you with money and you will lower your standards. You are a good LL. Maintain your integrity. The right tenant will come and you’ll be happy. Stand for something or fall for everything.
When you look at the credit report, is the score low because of things that are on going or poor decisions in the past? Look at his history with jobs and where he lived. Does he stay in one place for a while or does he move every year? I wouldn't take a year's worth of rent in advance.
Another reason for being consistent with your rules: It can lead to discrimination claims down the line if you decide to reject another applicant because of a lower credit score when you allowed it for this tenant. If you want to allow a lower credit score if they do pay rent up front then make that a written rule and follow it for everyone.
Is anyone else curious how someone has such a low score but so much cash? I would review the score to see why it is low if there are collections and late payments then no. Some people just believe in cash only and their score suffers but they are still responsible it is just up to you if you want to dig further. On the flip side maybe they have a lot of cash after a nice cash for keys situation and haven’t paid rent for a while so due diligence is a must.
@Mark Perea just keep in mind that accepting the entire year up front means claiming the income. That is how cash based accounting works. It means you will realize a full years worth of rent in 2020 which could hit you harder on taxes. Of course in 2021, there will be no income so it will offset to some degree. As others mentioned, do not spend the money. I would put it in a savings account. Legally speaking if there is breach of lease or if you go to evict, you will need to refund the rent for remaining months. I don't see a big issue doing this. Their credit score is high enough to get a mortgage, so it wouldn't worry me. Just make sure you check employment and landlord references. Sometimes prepayment of rent is a sign of illegal activity, so be on the lookout for that. Probably not in this case, but it does happen.
I would look less at the score and more at the depth of the credit. Does your tenant have 12 months of payment history with canceled checks at the last place?
I would not worry a bit for somebody that is pre-paying for an entire year.
I look very little at the score and more at the big picture because a credit score can be easily manipulated to be as high as they need it to be.
I’ve dealt with plenty of people that have bad scores that were amazing, and plenty of people with good scores that were a pain in the butt.
Hey Mark, thanks for posting this forum. I think it will help a lot of people and may save you a lot of heart ache.
Run for the hills! I was just speaking to my mentor a couple days ago and he had someone do the same thing. Paying a lump sum of the rent up front is usually a huge red flag. People will put on a good face so that you don't feel there is anything wrong with them or their past. If you dive a little deeper they usually have a record/felony. Once they have the property they will start using the property as their personal drug house. If you look up the video by Graham Stephen on youtube called "Worst Tenant I Ever Had", it will explain. Save yourself the heartache and pass onto the next guy.
I do think that if someone has a credit score that is just under your requirements, then you can give some leeway. As long as there are reasons for it. Like a student that hasn't had a credit card and is just getting out of college. But someone who has lots of fancy things or debt on credit cards is usually a red flag too. But if someone offers you to pay rent like this guy did, move on immediately.
Do not let the cash blind you, stick to your process and if all else checks out just do a little more digging on why the credit is what it is, if their explanation makes sense and there is paperwork to support it then go ahead and rent to them. Your evaluation process should already have a way to smoke out people who want to cook meth in your house and so forth focus on the issue at hand, the credit.
1. Why 650 and not 627? Sounds like a criteria that doesn't make a damn bit o sense to me. What underlies the score is what matters. You should have a report that tells you a whole lot of info besides a stupid number. People have medical emergencies and have to dispute criminal hospital charges. They get divorced and are told to stop paying certain bills by lawyers. Some people are financially irresponsible and they rotate who gets paid this month. That is what a credit report shows. If you want to put a score out there to weed out certain applicants- fine, but if you are talking about 23 point difference- what the hell is it based on?
Don't ever compromise your criteria, but make sure that your criteria has a legitimate reason for existing.
As others have stated, the eviction process can be a little more challenging if you received the entire rent up front. If they violate the lease terms then its fair game. Its been done just requires a few more steps.
@Mark Perea Hi Mark, I would take the 12 months of rent, but clearly outline a few things in your lease. Pay yourself on the 1st of every month out of the escrow account you set up. Make sure the tenant is aware of this; this allows you to evict if any issues come up. I hope this is helpful.
I have been in similar situations. Here is what I did that worked.
I required the following to move in: Security deposit, first month's rent and LAST two month's rent. So if the tenant pays month one, then month two and misses the third month you can start the eviction process immediately. If it takes a few weeks or so you will have two months of rent escrowed plus security deposit.
In your special stips portion of the lease clearly state that once rent is late, the eviction process starts regardless of the escrowed monies. When the eviction process ends you can pay yourself the portion of the 2 month's rent escrowed and return the remainder to the evicted tenant.
This helps hedge against the tenant who wants to pay in full and deal drugs for a year.