Screening a Small Business Owner

5 Replies

We made a tough family decision to move my mom into a senior living environment from her family home.   I decided to rent the house instead of sell it and in preparation, gave the house a much needed makeover.

Part of that makeover was repairing some plantation shutters the house has.   I found a company on Yelp with great reviews and hired them to repair and replace several shutters in the house.

Before I engaged a local property manager (I have several out of state rentals and always use a property manager) the owner of the shutter company called me and and said he was interested in renting the place in my area and his employee had told him about it.  

I asked them to fill out an application using "Zillow's application and background" service.  Really disappointing.  Didn't mandate they upload any financial documents or statements, just listed a dollar amount as "self reported".. The only thing useful from their report was a credit report.

Both husband and wife own the business.   Her credit is great.  Mid 700's.   4K on a credit card and no collections.  His is in the low 600's with a few collections accounts for a few hundred dollars and one 60K collections account for what appear to be student loans.   (Strikes me as odd as he is 63 years old).   But, he has no debt... not even a car payment.   

I'm not concerned about verifying they actually have a business as I know they do.   I know that they were very difficult to get them scheduled because they were so busy and they did great work.  They claim 7 full time employees plus them for 9 total employees.    When I met with them, they mentioned they deal with a lot of cash and actually Prefered to pay with cash... even offered me 4K right there as a deposit to "reserve" it... But I didn't take it.  

I'm concerned about the collections and have no idea how to verify their income, especially if it is as cash heavy as they claim.

Would anyone deny based on the large 60K in collections on student loans?   Anyone rented to a small business owner like this?

Any advice on next steps would be appreciated.  






You can verify their income by requesting tax returns for the past two years. Easy, peasy.

Why is a business wanting to pay in cash? That's a red flag.

When someone offers to pay multiple months in advance to hold the property for them, that's a red flag because they are often trying to entice you to short-cut the screening process.

I wouldn't rule them out, but the whole thing seems suspicious.

@David Woz

Depending on the types of clients, tenants, areas you operate in, you will always deal with a population of people that only deals in cash. So for me it's not a red flag. I agree with Nathan to have them show you tax returns.

I currently have tenant that want to pay in cash to buy money orders. A taxi driver who pays his month rent of $2,250 has to buy 2 postal money orders for $1,000 and one for $250. I bill him for water and he separately buys another money order but rounded up to the nearest dollar because it's such a pain for him to deal with loose change. I know he has a checking account but somehow takes the trouble of buying all these money orders.

I had a auto repair business in an area where just about everyone deals in cash. Once a customer came by to pick up her car, forgot to bring cash, but had her wallet with credit cards. She needed the car, so I said "why don't you put it on the credit card". She said "I pay everything in cash, I don't put anything on the credit card even though I have a good credit line". What did we do? At first I didn't believe her, she got good credit line, but to accommodate her, I agree to put it on the credit card, I'll take her card, she'll bring the cash the next day, I'll take the cash then, and I'll issue her a credit to her credit card. The credit card went through. What happened? I forgot the credit card company charge me a fee for issuing a credit besides paying fees for booking the CC charge. I was thinking, all right, cost me a few bucks to accommodate a good customer. And what happened to the customer? We're located in a busy area and she was ticketed for double parking which ran her over $100. We were busy that day and it took a while to do the transaction of taking her cash and issuing the credit. She was so mad when she got the ticket and came back in yelling. I told her, this deal is costing me a few dollars too. I added "One of these days you have to get used to NOT dealing in cash".

Yeh, there are people out there that only deals in cash. I also had a tenant, a police officer that pays in cash. So I said "don't the police department issue pay checks"? Said the cash was from a part time gig. It wasn't till he was arrested that I learned his part time gig was extorting local businesses with a group of crooked cops. Guess he didn't want all that money going into his checking account for people to find out. For me, the apartment was used as a meeting place for crooked cops, no one lives there, so I saved a bunch on utilities which I cover. He was always up to date on the rent though. The extortion business must be profitable.

@David Woz the $4k cash proposal is definitely suspicious and should raise a question on where that money originated.

In addition to tax returns, you might want to ask to see their financial statements (balance sheet, profit and loss statements, etc). It also doesn't hurt to check the business out or otherwise gather more information about it such as how long they've been around.

Anyways, good luck.

Thanks.   I didn't get the impression they wanted to pay rents in cash, they just mentioned they do a lot of cash and then he offered me cash for a deposit to hold the property for them.   I think they were concerned I was going to list it for rent in a area that has low inventory. If they fall through, I suspect I would have it rented in a day or two.

I asked for tax returns for two years and 6 months personal bank statements.   We shall she what comes of it.

Thanks!

Originally posted by @Nathan G. :

You can verify their income by requesting tax returns for the past two years. Easy, peasy.

Why is a business wanting to pay in cash? That's a red flag.

When someone offers to pay multiple months in advance to hold the property for them, that's a red flag because they are often trying to entice you to short-cut the screening process.

I wouldn't rule them out, but the whole thing seems suspicious.