Would you rent to tenant with large CC debt

Question

In the tenant screening process and found what I thought was a good fit. Credit screening however revealed >$75,000 in credit card debt most of which was accumulated over the past 3 years. There is additional 40K in car payments and a home that was purchased around the same time. Credit score is >700.

Would you be willing to rent a newish SFH in a fairly nice neighborhood? Rent close to $3000 per month.

Kevin Von Storch · Answer

@Kemi Okafor theoretically the sale of the house would be able to knock out some of their debt but the sale of the house is not a given (asking price, quality of home, rates, location, etc.), so, if it were me personally, I’d move on to other options. But this is your investment and only you know your risk tolerance.

Theresa Harris · Answer

No. Unless it was due to a medical event, to accumulate that much debt in a short time while having a long term, well paying, stable job is not a good sign.

Bud Gaffney · Answer

@Kemi Okafor NO WAY

Alan Asriants · Answer

I always try to figure out how much the tenants monthly bills are. I first account for rent, then I look at car payements, then revolving CC payments, student loans, I estimate utilities, groceries, and only then I subtract their NET income. If its too tight, I pass. I want at least 500/m in buffer (This is for one person). If its a family and there are more dependents I would want to see more money left over every month. I don't want to put people in a position where they are tight every month. Not fair to them and a risk for me

Joe Garretson · Answer

Not sure if it's legal but I'd ask why the huge accumulation of CC debt. If they can provide a decent excuse (never a good reason for that amount of CC debt), then that could help. Long term govt job usually means steady income with little chance of getting fired.

Scott E. · Answer

You say their income is 4x the rent. But what is their debt to income ratio when accounting for rent, credit cards, auto loans, etc?

If their total debt to income ratio is still very low, then that helps their case. And as @Kevin Von Storch said, maybe the sale of their home will wipe out a lot of this credit card debt.

What does the demand look like for this house? If you have been listed a while and this is the first applicant, then you will obviously be more inclined to justify working out a deal with them. If you just put this listing on the market, maybe give it some more time to see if there are any more qualified tenants out there.

Kemi Okafor · Answer

"Thought" they were a good fit before running credit. Very stable long term job govt with 4x income and excellent retirement. Their new home in a different state that was purchased 3 years ago is going on the market. The move is job related.

Ray Hage · Answer

As an investor, I would be really worried that the tenant won't be able to make rent payments after a while especially if some kind of salary reduction or job loss were to occur or some other kind of financial emergency were to happen. That is a huge red flag to me and I would probably pass on this candidate.

Kevin Von Storch · Answer

@Kemi Okafor what makes this tenant a good fit? To me, that amount of debt is a huge red flag. If your property is priced right and in a nice neighborhood, I have a hard time believing you wouldn't have better candidates than this individual.

Would you rent to tenant with large CC debt

Would you rent to tenant with large CC debt

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