My husband and I are looking to rent our house and will be managing it on our own. We have multiple rentals, but have always had a management company, so I am somewhat familiar with the process, but also still learning! We currently have two applicants on the house, both of which have positives and negatives on their credit reports, so I am hoping I can get some input from more experienced property managers/landlords.
Tenant applicant A (husband and wife):
- Both credit scores meet our minimum requirements
- Income meets our minimum requirements and then some
- Only a couple debt items (auto payment, credit cards, etc). Per the credit report, each have used up less than 50% of their credit.
- One of the applicants has had multiple debts sent to collections. All were under $1000 each, but the majority have been within the last year. I still have yet to get a hold of his previous property managers to inquire about rent payment history.
Tenant applicant B (husband and wife):
- Both credit scores are slightly under our requirements
- Income greatly exceeds our requirements (18x the amount!)
- Per their credit report, both have used up 90+% of their credit. It does appear that some of that is due to other mortgages (which we can all understand!), but there is also tens of thousands of dollars in credit card bills.
- Neither of them have had any delinquencies on payments.
What I'm going back and forth on, is the delinquencies of tenant A vs. the amount of payments tenant B has to make each month. Is how much each has used up of their credit a factor you generally look at? I appreciate any and all input that can help us out!
Neat realistic scenario.
I might really get into their rental history.
I find renters often have a lot of financial obligations, and while I think it is great if they are keeping up with their consumer loans, student loans, credit cards, car loans, etc.--but what I really, really want to know is how well they pay their rent/housing.
I prefer the folks that prioritize rent above all the other "stuff" (as they should because their will be no place to park or put their stuff if they get evicted!).
I have 3 past residences (landlords/housing) deep on my application and will actually try and get a hold of them all if possible.
If one of these applicants had an edge on timely rent payments (for example, one applicant paid late or had trouble making rent), then I would go with them.
Or if they seem tied on the financial side and had equal ability to pay, I would also make sure to check how they did on following rules, excessive wear and tear, noise, unauthorized occupants/pets, etc. Along with paying the rent, make sure they won't take an unreasonable toll on you or the property.
It may be a case where you can offer the place to the first choice (I open it for 24 hours to accept and sign/pay 1st month and deposit) and if they take it great, but if they decline, you have solid second choice (not a bad place to be in as a landlord).
Best of luck!
What is your rental criteria?
Credit History? Income History? Rental history? Legal history? Smoking? Pets?
Applicant A to me seems a more realistic scenario. It's fair to ask them what happened that led to their accounts being sent to collection. Sometimes other people's stuff erroneously shows up on a credit report. Verify it's all theirs. Is there still a balance on the items sent to collections? If yes, are they in a payment plan?
Applicant B.... something odd going on. Gut feeling.
For both applicants....
What's their debt to income ratio - no more than 20%? Do they keep balances on their revolving accounts or do they pay off them off each month? [If you were to take a snapshot of my credit report and my husband's you might see thousands of dollars on our credit cards at any point in time because we autopay as much as we can with credit cards and most of our purchases are made by credit card. What may not be evident is that all of the balances are paid in full every month! No penalties and no interest. Both of our scores are above 800. The point is, there's a smart way to use credit and a foolish way to use credit. Dig deep.]
Which applicant is likely to take better care of your place? Which tenant is more likely to adhere to the terms of the rental agreement? Which tenant is more likely to stay long term? Which tenant is more likely to take care of the landscaping? Which tenant is more likely to communicate open and honestly with you? How did the two candidates compare when they viewed the property? Did they indicate that the house has features that would match their lifestyle? Would they settle in well with the neighborhood and be good neighbors?
Honestly, for me, credit history doesn't weigh as much as rental history, adherence to agreements and the ability and willingness to pay rent and utilities on time. We don't even worry about credit scores. Open and honest communication is paramount. So is taking care of the property. If you can, stop by their current residence and see what it looks like.
Trust, but verify and pay attention to your intuition! Good luck!
Both A and B would make me very nervous. I would immediately eliminate B. There income indicates they should be able to afford a higher standard of rental but clearly they are living beyond their means in other aspects of their life....too high risk.
Applicant A indicates that one is irresponsible in regards to financial commitments due to the collections. On the surface not too bad but it would depend entirely on their rental payment history. You will need to dig deep and hope previous landlords will be honest, which unfortunately in this business is highly unlikely. If you find any history of late payments reject them as well. You do not want to be their banker.
A maybe, B definatly not.
You say you have always used PM, so is this the first time you alone are doing tenant screening without PM?
I see no mention of checking for past evictions and criminal activity; these are things that IMO every landlord should consider when evaluating any applicants.
And as @Marcia Maynard wrote, what are your acceptance / rejection criteria? Do you allow for a stronger metric in one area to compensate for a weaker metric in some other area? An example of that is low credit score but higher income, sort of like one of these candidates.
As to the amount of debt any applicant has, you should really be looking at that from the perspective of a debt to income ratio (DTI) - basically, does the amount of monthly debt payment plus rent leave enough to afford living expenses like food, vehicle expenses, utilities, clothing, etc. I still recall one applicant (a young couple) from a number of years back, where income was just at the minimum to qualify, but then there were three car payments on the credit report that totalled to almost the rent - way too much monthly debt payment for just the car payments, and why do two people need three cars ...
Oh, one thing to add regarding income - it has to be VERIFIABLE and documented. The one applicant has 18x income to rent - have you verified this and how? And is it documented (they report it on income taxes for example)?
I would check with the previous and current landlords of tenant A. If that checks out with perfect on time rent I would consider tenant A.
I would not even consider tenant B because they are way too irresponsible with money and I have a bad feeling about them. If tenant A does not check out with the landlord I would keep on advertising until you find qualified tenants.
I would go with Applicant C!
Thank you everyone for all your advice and input! It has definitely given me more things to think about than just our current parameters.
We are currently requiring that the tenants have at least a 680 credit score, make 2 1/2x the rent in income, no evictions, no criminal history, no smoking, pets ok. These are the parameters our property manager uses for our other properties, so I thought it was a good place to start. The application also requires the tenants to do a credit check and background check, so if there are any hits for evictions, criminal history, sex offender results, etc, then I will see that. I am not 100% sure how I'd verify income. I guess I figured that with the credit report, it was based off their SSN and tax documents. If not, that is also something to confirm!
Again, thank you for all your responses! It has been a great help!
IMHO you are focused on the wrong things but based on what you posted Applicant B and it's not even close.