Higher Risk Tenants?

20 Replies

First post guys!  

My question has to do with higher risk renters.  I recently purchased and improved a property, and listed it for rent.  The response has been very good, with several interested renters.  

The problem I am encountering though, is every single one of them has some kind of red flag.  Bankruptcy, eviction, very low credit score, no SSN#.  

The place has been listed for just over a week.  In anyone's experience, should I hold tight and hope that a more perfect tenant situation arises?  Or should I just ask for first/last/deposit or 6 month lease situation and hope for the best?  Are there red flags here that are more serious than others?

Thanks!

An empty unit is better than one occupied by a deadbeat. It's only been a week. Sit tight for now.

Screening serves the purpose of reducing a landlords risks and therefore prevents, to the best of their ability, evictions and lost income. To lower your standards will place you at higher risk and result in greater management responsibilities in maintaining a profitable business. No amount of money collected from tenants will avoid the time and stress or lost income of dealing with low standard tenants.

Obviously standards must be adjusted to suite your property type, A/B/C/D. It is always prudent to only offer M2M leases regardless of your property type or screening standards.

"Bankruptcy, eviction, very low credit score, no SSN#". These red flags should never be compromised on when screening. Each is guaranteed to lead to evictions and costly expenses. The primary purpose of screening is to find reasons to reject applicants. When you can not find a reason you MAY have found your best applicant.

@Steve Burrell ,

You can't expect to have it filled with the perfect tenant in 1 week, wait a month or so, and then maybe reassess the situation.. maybe offer move in incentives, as December is a very hard month to rent out.     Always remember-- No tenant is better than a bad one... with that being said,you have to be realistic with the market and who the renters are.    

 We focus on income as the most important factor, and job stability.   You have to look at each individual story, and make sure it makes sense, and then assess the risk.    I'd pick a bankruptcy over an eviction, because then the debts are wiped clean, and they have more available income.    No SS# is a big red flag, personally I just wouldn't deal with that, just because if by any chance it goes south, you have no way to identify them to a court.     Look at their story, and make sure it passes the logical sniff test, why are they moving, especially now-- people hate moving in December?    IMO that's the most important question to ask!

Wait for someone better.  Don't get desperate!

keep in mind it is very rare for people to change. Some view past indiscressions as a one time event. That is usually BS. If they have done something in the past they will likely do it again. As a landlord there is no justification on your part to give people a second chance. We are not social workers. Let the hobby landlords take that risk. Remember whatever happened in the past when it reoccurs their landlord will be the first to feel the pain.

First you must establish really good rental criteria that matches the type of place you have to offer and tenant pool for the location.

Are you aiming for the high end market, mid-range market, or low-end market? Is your house/condo/apartment a good fit for that market?

For example, we rent to low-income and mid-income folks. Our properties are older and are in modest neighborhoods that are relatively safe. We see many prospective renters who have a weakness in their history or who present with a problem. The key is whether that problem is significant enough to pose a real risk to us. Often a higher security deposit will help reduce our risk. The other thing that will reduce our risk is a strong rental agreement and the moxie to enforce it. Some folks just need a second chance to move past the bad mistakes they've made in the past.

Some tenants who were rejected by others have become great tenants for us. But we take the time to look at the root cause of problems in a person's past and we use property management techniques that guide tenants to do the right thing.

--------

You mention some significant "red flags". When someone presents with one of them, I'm inclined to ask more questions.  

"Tell me about the eviction."  What was the reason for the eviction and what was the tenant's response? That's the key. Were they evicted for "cause" or "no cause". Were they evicted because the property owner wanted to remodel the place to raise it into a higher rent bracket? Or change the apartment complex into condos? Or sell the property? Not too uncommon. The key is, what did the person do when they got the Notice to vacate..... did they hold over and refuse to leave and thus this was handled by the courts as an "Unlawful Detainer" and upheld by a judge? How long ago did the eviction occur and what has the person done since to improve their rental history? Was the person evicted for failure to abide by the terms of their rental agreement or holdover after being asked to leave? If the latter, that would be a deal breaker for us.

Why does the person not have a SSN? Do they have an ITIN instead or are they a foreign student here to study on a student's visa? Are they an illegal immigrant who has lived in this country for over 20 years under the radar? Gainfully employed and a good community member, but just undocumented? It's possible to do background checks even without a SSN, so this is not a huge problem for us.

Bankruptcy is a tool used to get out of personal debt or business debt. Why did the bankruptcy occur and how long ago? What is the current financial status of the applicant? Are they likely to go this route again or not? What is the risk to me? Minimal, because I'm not extending credit and I require rent to be paid monthly in advance. Bankruptcy in itself is not a deal breaker for me, but why it occurred and what has happened since may be more telling and significant.

Low credit score.... this can result if the person is really bad at handling their money or very irresponsible in paying debt. It could also occur after a tragedy which resulted in high medical bills that went unpaid. Again, why the low credit score and what is the person doing to bring that up? Higher security deposit most often covers my risk on this one. However if the person still has outstanding debt to any landlord or utility company, it's a deal breaker for me. If they owe over $1000 that is not in a payment plan, it's also a deal breaker for me.

The point is. Look at the whole package. Ask more questions of the applicant to get to the reason behind the "red flags". Keep on your toes not to be schmoozed into accepting an unworthy tenant.

@Marcia Maynard

The problem with asking questions is that probably not 1 in 10 landlord will be able to discern the lies and BS from the real truth. Most tenants with past history issues are well versed at snowing people especially novice landlords. They fall for the sob stories every time as you probably know from your own past experiences starting out. People have a natural trust jean that will trip up a novice landlord every time. 

It is usually best for novice landlords to simply pass on questionable applicants until they become seasoned and callous to peoples life stories.

Once seasoned that may change but rarely is it necessary to choose a questionable applicant in a A/B rental market, maybe in a C/D property but you must still be experienced as those applicants are highly honed liars.

What Class area is the property at?

Class B, C, C-, or D area?

Originally posted by Account Closed:

What Class area is the property at?

Class B, C, C-, or D area?

 C property  Older, low(er) income area 3br 2ba

In class C area, it would be very difficult to attract perfect or ideal tenants, because quality tenants in general are willing to spend more money living in a better areas.

If I were you, eviction and no SS# is absolutely a “NO NO” to me.
I would choose someone with low credit score or bankruptcy, with at least two months of pay stubs for proof of income. Income is a minimum of 2.5 times the rent.

First month rent and security deposit (at least the same amount of the monthly rent).

Be patient and wait for the one without eviction.
Someone with eviction before most likely are the deadbeat tenants.

Good luck.

First u need the criteria ur gonna use to select ur tenants. Ur criteria has to be a n line with ur market. For instance there certain towns in ca where over half the people don’t have ss#, so in a town like this if ur criteria is that tenants need a ss# then ur writing off half of the people. Always aim for the best tenant but do so based on ur market.

Its December , heres what I have been getting , 3 out of the last 4 were evicted or being evicted . The last had too low of income .  This time of year you have to use every resourse available to screen the tenant .  One person that expressed interest , showed that they moved in their last place in May 2017  , 6 months ago . So I checked the county court records and there they were with 2 failure to pay rent and a 3rd pending ( this means they are getting evicted) 

The place can sit empty before I just put a warm body in it 

@Steve Burrell High risk tenants are never good. Potential problem. Goal is to get paid and not cause have any issues. Your better off hiring an agent to help find you a tenant at that point, then have a high risk tenant who will destroy your property, not pay/not pay on time, annoy other people in the building or house if its multi family.

Several tenants without SS# applied for my rentals before and I rejected all of them.  

Some tenants without SS# are good tenants, but they are not my target tenant pool.  

If you don't mind keeping the tenant forever in the house, tenants without a SS# may not be an issue. 

However, I will sell all my rental eventually, tenants without SS# in general are harder to find a new place and move-out. 

I don't want them stick in my house forever when I ask them to leave when it is time to sell. 

Therefore, I reject all applicants without SS#.  

Some of our rentals (SFH) are in class C neighborhoods. Our screen outs include any history of evictions. Even the first step in the dispossessory (our version of an eviction) process (i.e., the tenant has received the Pay or Quit notice and ignored it; the landlord has filed for the eviction but has not completed the process, either because the tenant paid what was owed or...more likely...moved out) is a screen out. This information is available to us online through our local Marshall's Service since they handle all the notices. It's an interesting site; one will sometimes find pages and pages of the same renter going through the same process again and again.

 Haven't run across any issues with tenants who do not have social security numbers so I can't comment on that; however, since I run a screening on each individual and need this to do so not having one would likely be a screen out for me.

I've had a couple of tenants who have gone through a bankruptcy.  No problems with them paying their rent.

While many landlords will say don't focus on the FICO score applicants will often ask what score are we looking for.  I tell them at least 600 (which, by the way, is a dismal score).  It's amazing the number of applicants  who don't reach that level.  

In terms of running a credit check, I MIGHT overlook collection issues such as medical bills (since one trip to the ER without insurance can cost thousands) but really stupid things; phone bills, internet/cable service (common), rent-to-own places; nope. 

Speaking of rent-to-own places; I've found that for tenants who rely on these place, the handwriting is on the wall for an eviction in terms of nonpayment of rent sometime in the future.  Someone who can only buy via this method often finds themselves in so much debt doing so that they cannot meet their rent requirement.

Look carefully at where the income is coming from.  Sometimes with these levels of rental properties you'll get applicants who state their income is from doing yard work or day labor work or as cooks or wait staff.  Not the most stable employment in the world.

Gail

Originally posted by @Thomas S. :

@Marcia Maynard

The problem with asking questions is that probably not 1 in 10 landlord will be able to discern the lies and BS from the real truth. Most tenants with past history issues are well versed at snowing people especially novice landlords. They fall for the sob stories every time as you probably know from your own past experiences starting out. People have a natural trust jean that will trip up a novice landlord every time. 

It is usually best for novice landlords to simply pass on questionable applicants until they become seasoned and callous to peoples life stories.

Once seasoned that may change but rarely is it necessary to choose a questionable applicant in a A/B rental market, maybe in a C/D property but you must still be experienced as those applicants are highly honed liars.

You make some good points.  It's easier once you have more experience (landlording experience, life experience and applicable work experience.)

I always ask questions because many prospective renters will actually tell the truth, even if it means they risk losing the place or paying a higher security deposit. Partly because I'm willing to rent to people who've made mistakes in their past and have turned themselves around. They may not have many options and it often gains for me some loyal long-term good tenants.  

I let prospective renters know I value open and honest communication. Also, I tell them we do thorough background checks and if anything they tell me during the interview turns out to be false, then it's a deal breaker. The ones who lie often trip themselves up or say something that gives me a clue into their character or real past history.  As with any tenant selection.... it's critical to verify what the applicant is saying and what is written on the application by doing thorough background checks. Trust, but verify. Trust your gut too. Like Columbo, I don't show all my cards and I'm a bloodhound for ferreting out the truth.

Our properties are B properties and we have tenants from the A/B/C market pools.

I have B properties and rent to B+ tenants.

If you have a C property, you might only get C tenants. If you want a C+ tenant, make it the best house in the neighborhood.

Thanks for all of your input!  I've passed on the eviction (also called past landlord, major smoker damage YUCK) and have decided to stick it out!  

Do not expect anyone well qualified to move in the middle of the winter. Often they are the ones who got evicted elsewhere.  Work on your cleaning up, touch up, snow removal if any. I have unfilled homes outside Apple headquarter(space ship) that has not been filled for 2 months. There is a serious shortage of housing here.

Originally posted by @Steve Burrell :

First post guys!  

My question has to do with higher risk renters.  I recently purchased and improved a property, and listed it for rent.  The response has been very good, with several interested renters.  

The problem I am encountering though, is every single one of them has some kind of red flag.  Bankruptcy, eviction, very low credit score, no SSN#.  

The place has been listed for just over a week.  In anyone's experience, should I hold tight and hope that a more perfect tenant situation arises?  Or should I just ask for first/last/deposit or 6 month lease situation and hope for the best?  Are there red flags here that are more serious than others?

Thanks!

 It's all about the quality of the neighborhood. Are these folks the norm for the area or are they just bad apples all coming to you at once?

Whatever you do the eviction should always be an automatic no. Low credit score you should do some digging. Why is it low? Are they stiffing everyone or is it just medical or student loans? I find almost every C-Class tenant has past due medical & student loan debt.

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