Woodland Hills, CA 路 Member since 2016 路 1 post 路 4 votes
First time landlord working with a property manager to rent a large, very clean, single family home in a Los Angeles suburb.
What are acceptable tenant credit scores and requirements for cash reserves? I see that my initial expectation of credit at 750 was hugely unrealistic. Any insight appreciated.
@Diane Savoian - I agree with what both @Jon K. and @John Morgan said. I have great tenants that have low credit scores. Remember, you are NOT your target tenant. When someone is renting there is a reason - they don't have good credit, they can't save up a downpayment, they have past medical bills, etc. Those can be great tenants and stay long term. Imagine if you rented to yourself, you'd probably have high standards and buy within a year. Not the target.
@Diane Savoian This is a bit subjective as it really depends on the neighborhood. Personally, I don't worry about the score so much as the story. It's not unusual for people to have had a rough spot in their history due to something like medical bills that just crushed their score. Some of my best tenants have had scores in the high 400s.
What matters to me, is what does their credit history look like over the past few years? Do they have active lines of credit and have they been making payments on time?
Combine that with the rest of the picture: employment verification, rental references, criminal/background check (look for active judgements from creditors). Do they have ANY bankruptcy or evictions in their past (easy to pass on them if the do in my opinion). So if their score is low but everything else looks good I'd still accept them.
What 馃憜馃徎just said. I just rented out a SFR that I spent about 50k on to someone with a 545 credit score. I look at job history and late payment history. Most of my tenants only have one credit card and don't use it much paying for things with cash. This means they'll probably be renters for years to come. I want people to stay for years in my properties, so I go for the ones that don't look perfect on paper. That kind will move out in a year and buy a house. I want lifers so I have low turnovers. Lol.
@Diane Savoian - I agree with what both @Jon K. and @John Morgan said. I have great tenants that have low credit scores. Remember, you are NOT your target tenant. When someone is renting there is a reason - they don't have good credit, they can't save up a downpayment, they have past medical bills, etc. Those can be great tenants and stay long term. Imagine if you rented to yourself, you'd probably have high standards and buy within a year. Not the target.
Remember only 16% of Americans have a credit score below 580. Basically you have to do something pretty wrong to end up there. I personally think 650 is a good goal, 600 is adequate.
BUT as the others have stated, I think the tenant is more important than the actual score. If they are upfront, let you know that their score is on the lower side because xxxx, then I take this as a positive attribute. Maybe they got themselves a bit underwater - but are working their way out, or medical/school loans, etc. The ones that I worry about are the prospective tenants that ignore it, then come back with a 5xx score expecting me to not check it.
I look for a score of at least 600. It's more important to understand what makes up the score. Late payments, why they are late and mostly historical. People are renting for a reason, no down payment, poor credit score, etc. You want a long term tenant anyway. I look at past evictions, job history, income, debt, and DTI as well (45%).
Lee Ripma, some people rent because they just don't want to buy, at least not a personal residence. There are several reasons. 1. They just moved to the area because of a job change and they are not sure where they want to live for the long term. 2. You generate no positive cash flow from a personal residence. Better to rent the property you live in and use your cash to generate income in an investment property.
@Diane Savoian Most landlords have their credit score minimum typically set around the 600-650 range. I personally feel like a person's credit score is only one part of the equation. Many people have issues with their credit, or maybe they've just started building their credit. Some other important factors we typically look at are - If the tenant has a good job, meets the income requirements, passes their background check, and has good employment and landlord references.
Much below 600 you typically have problems getting credit, which translates to very little margin when life hits you hard. This can put everyone in a tough position, landlords included.
In this moratorium environment look for people with recession resistant jobs and very low rent to income ratios. People don't pay usually when they dont have the money to pay. So look for high income tenants in this "new world" . Consider section 8 very highly. Ofcourse, do not neglect credit score, the higher the better(650 at least). For now , don't worry so much about the tenant moving out early because too much is at stake and too many moving parts. Being landlords just became very risky in case you did not notice what the eviction moratorium is doing and will do to landlording.
Some tenants just don't understand how easy they could get a house. If their credit score was great, someone has talked them into a house and they would not be interested in your rental. You would be surprised how many tenants are great earners, pay their bills and don't have homes!
Check out their past reference, if they have deposit and rent ready to "rock and roll" and have nice wheels that don't have a $500 payment.
Criminal, past 3 years, if someone hit someone. Oh well!!!
I think tenant scores vary, but it really depends on your screening process and how you view that process. The thing is, at least what I've learned, is that you should treat it like you are investing in another asset/business, you need to review all the sides. The score is just a number, and that may go south really quickly. But on top of that, you need a lease that is ironclad.
@Diane Savoian I consider the durability of each tenant's income when I am screening them. The credit score is the indicator that they are interested in paying bills, but like others have mentioned if they have great credit and low income that could spell trouble too. I have found that 600 is normally the bare minimum for me personally. The more into the 600's the better. Anything over 650 seems to not matter as default risks are pretty low at that point. I also look at their liabilities as well though. I recently denied someone with a mid 600 credit score who had 140k in student loans... and she only made 45k per year. Insanity.
@Diane Savoian you can get a conventional mortgage with a score as low as 620. I have rented to people with scores in the 400's but in hind sight that was a mistake. Some worked out great, but all my trouble tenants have had low credit scores. Given today's climate with COVID, specifically the eviction bans, I would not consider anyone under 600 average between applicants. The reality is if your credit is crap, you have less incentive to pay debt. People with good credit work harder to pay bills to protect their credit. This is not 100% of course, but statistically speaking someone with higher credit will be more likely to pay rent and do less damage to the property.
@John MorganThsnks for the tips). I too want good people, meaning do the psy thier bill's or st least try to. Things happen in life, sometimes it's what you do about them that matters most. I want long term tenants too, every landlord wants that.
I usually consider 630-650 credit score with employee verification and a full background check in which the interested family pays for through apartments.com as a part of the application process.
In the Fitchburg Ma area we were looking for 600. I found it hard to get that in the area I am working in. We shot for 600 because that is a good credit score, but not something that someone can buy a home with now. If a person is 620 and above they may qualify for financing, FHA or otherwise
@Diane Savoian There are a lot of variables here. I'll just give you the short answer in my opinion. 640 minimum. The reason being, you can get an FHA loan with a 640 credit score.
If it comes down to it, we look at job history and length of employment first and foremost. From there we diligently work to confirm rental history with past landlords but that can be hit or miss. We鈥檝e had landlords give great recommendations in hopes of getting a tenant out. There has been a significant amount of data recently showing credit score and strength of tenant are not closely tied together the way people may think, therefore we don鈥檛 put much focus on it.
depend on the neighborhood and your type of home compared to apartments around. if you are in lower class neighborhood you will find lower credit scores.
think of it like this, someone with 750 score wont have issue buying a house instead of renting.