What Criteria should Tenant's meet in a C Class Area ?

4 Replies

I own 5 SFH in a C class area of Phoenix AZ. My first tenant in my first home is still with me going on 3 years but one of my other homes is going to have its 5th tenant in a little over 2 years. The difference of income on these two properties is of course significant. What is a realistic criteria for C class property? FICO score, back round check results, proof of income etc? My manager has also been renting my houses for $850-$895 and we are getting $600 for security deposit. Shouldn't security deposit be the same as one month rent ? Should I use someone that screens tenants for landlords? My vacancy's are always rented quickly but I am willing to pay more and wait longer to find a good tenant that will stay for a while and pay rent on time. Anyone with experience, please help!

Security deposits have regulations pending on state. For me the max security deposits is a month and a half so if rent is 1k/month security is maxed at $1500. I don't have to charge a security or can charge less then a month and half. Find out what your local regulations are. If you can charge a month and half or more then require higher security deposit. In my opinion a better tenants will be able to come up with a higher security deposit where as less desirable tenants likely will not. Let's face it if you don't have the money for the deposit that you get back assuming all goes well then you probably don't want that tenant or will trust them to pay every month. But keep in mind there is no fact to what I am saying, this all based on what is more likely to happen in my opinion. Bad tenants can pay deposit and look at it as an excuse to go wild. So with that being said I would also recommend you take your time screening, wait for many applications. Put your rent slightly below market value and attract a lot of interest. Possibly create bidding war on your rental. Best of luck.

We like to have our security deposit be one months rent, but we have to look at what other landlords are currently charging and go with the market rate to be competitive.  Get more if you allow pets.

For our screening, we don't expect the tenants to have credit, we are thrilled if they have a bank account.  We are running their credit to see if they owe other landlords or utility companies money; auto, consumer, and medical debt is OK.  We are also looking at address history - if it matches the application, if they move a lot.

We are also more lenient on criminal, looking at how many counts, how long ago, and seriousness.  We can't get 3x rent in earnings, but we are looking for steady verifiable income at at least 2x, more the better.  We call prior landlords, employers, and we snoop on Facebook.

Don't get less security deposit than at least a month's worth of rent.  If someone doesn't pay your last month's rent, you want at least that.  Ideally, you can get $200 or more than one month's rent.  If other landlords in the area aren't doing that, though, you may have to do just one month's rent as security to be competitive.

For C level tenants, don't go by credit score.  Instead, look at rental history -- if they've had evictions in the past 3 years, they might be unreliable.  Sometimes people look at the last 5 years.

Also check to see who they owe.  If they owe the utility company, they may not be able to put utilities in their own name and that can be a problem.  If they owe lots of people, why not skip out on you -- you're just one more name on the list.

So you have a turnover problem, too many and too fast. But only in the one house?  If it is only that one house, what is so different about that house that you only attract bad tenants or tenants that move in short order?  It just might be in the wrong block, the schools there might be bad, the state of repair of the house might be an  issue, the house might lack some features that the tenants there expect / need, etc. Until you identify why the house only gets bad tenants or tenants that quickly move along, and can solve those issues, you stand to only get those tenants. 

As far as criteria for acceptance and rejection, sometimes you have to set those to accommodate the neighborhood. Getting monthly documented income of 3x monthly rent is a good number to use, as it is similar to the HUD Section 8 requirement for tenants to contribute 30% of income to pay rent; going to 2.5x would be the same as the Section 8 maximum tenant contribution toward rent of 40% of income. If a higher crime area, expect lots of prospective tenants to have an arrest record of some sort; doesn't mean you have to accept those, but the more stringent you become the fewer candidates will be in the tenant prospect pool for you. What to extract from a credit report is part art and part science; if you just get a FICO (or other branded model of) credit score, you don't get to see the details that matter. And as somebody posted already, getting feedback from the former landlords is a must, but you have to be aware that tenant applicants pull all sorts of clever tricks to try to outsmart the landlord doing this.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.