New to Real Estate · Minneapolis, MN · Member since 2020 · 14 posts · 12 votes
I have a prospective tenant that does not meet the criteria of 2x monthly income and a credit score of 650+. He said times were hard and he was out of work but has money saved. He offered to pay a years worth of rent upfront. Thoughts?
I’ve always wondered if in the scenario I take 12 months rent upfront and he turns out not to be the best tenant. For whatever reason I have to evict after 2 months of him staying; would that be hindered due to taking 12 months rent?
Don't take the 12 months rent upfront. The prospective tenant is desperate and involved in something you don't want to be part of. No way of knowing what that something is, but there's no reason to find out.
You have a business, and your business has requirements. One of those requirements is 2x monthly income and another is credit score. If you were running a pizza shop and a prospective delivery driver applied who had his license revoked and a DUI, you wouldn't hire him just because he said he'd fallen on hard times.
This is no different. If you want to give back to the community, work with a local charity. Best of luck!
Don't take the 12 months rent upfront. The prospective tenant is desperate and involved in something you don't want to be part of. No way of knowing what that something is, but there's no reason to find out.
You have a business, and your business has requirements. One of those requirements is 2x monthly income and another is credit score. If you were running a pizza shop and a prospective delivery driver applied who had his license revoked and a DUI, you wouldn't hire him just because he said he'd fallen on hard times.
This is no different. If you want to give back to the community, work with a local charity. Best of luck!
I have a huge heart and while I've trusted people and had regrets I still consider each applicant based on what I get out of the personal interview.
People do run into financial problems and it is not always their fault. Personally, I would give an applicant many stars if he has 12 months of rent to pay in advance because if he trusts you enough to fork over 12 months of rent then I feel compelled to trust him. This is where I start to has the applicant many questions and even ask what his battle plan is to pay rent after the 12 months.
As stated several times, I own several apartment buildings, never did a credit check and we only end up taking one tenant to court for an eviction about every 3 to 5 years. We had one tenant with one child and she was a nurse. She was making $60 per hour, was working 2 jobs and was making more than $12,000 per month. She even brought in a credit report she obtained from somewhere and she had nothing negative on her report.
What happened. This tenant paid us $1350 for the first month's rent with and a $1350 security deposit with a credit card. She moved in and then put a stop to the payment on the credit card because she said the credit card belonged to someone else. So, we evicted her and ended up taking her to court. It took about 4 months to get her locked out of the apartment and we lost almost $10,000. So, 'Poop Happens'. It turned out she really was earning $12,000 per month, but she was also a professional scammer who lives in apartments for free and it did not show up on her credit report. We copied the report and have in in our files. What good did the credit report do for this situation.
We got burned a few time, but we do very well by evaluating everyone like they are a human being and not we don't call them APPLICANTS. We call them someone interested in renting from us. We personally prefer to collect our rents every month from our tenants vs. some sort of electronic payment system because it gives us the opportunity to humanize the way we deal with our tenants and it gives us the opportunity to be more friendly and allow our tenants to tell us about their personal and maintenance issues e.g. tenants will tell forewarn us about health issues e.g. we've had several tenants who had liver problems and they expected to pass away within a few months. By collecting the rents from these tenants this allowed us to understand their situation and work with them and their relatives in regards to paying their rent and we never had a problem where a tenant passed away and did not pay their rent until their possessions were moved out.
Many times, a tenant has a medical problem and can't pay their rent for a month or two because they have to go into the hospital and then they have to recover. By collecting the rents, personally, we get to know these tenants better and we feel more comfortable trusting them and we never have a problem where our tenants stiff us for the rent with the exception of the one eviction lawsuit every few years and that is an expectation in the rental business whether or not you do through credit checks.
- Should you do it? I would say no. They don't meet the criteria.
- If you do do it what happens if he is a bad tenant 2 months in. Well, you can't evict for non-payment of rent so you are going to need another reason. With moratoriums in place and likely to be extended and more than likely more lockdowns coming I think getting them out may be difficult as you won't really have a valid reason if you do a term lease. if you do a month to month and just not renew that might be your best case but again, getting them out may take awhile. Also, remember, the money isn't yours if it is prepaid. You can only count it as yours as each rent due date passes.
If he's paid rent for twelve months, you're going to have trouble justify the weird stink coming from his place two months into the lease as a reason to evict. And when his little meth lab explodes in the third month, everyone will of course blame you.
@Jody Sperling That was my first thought. Thanks for affirming what I was already leaning towards. I was just attempting to understand his thought process, if it was actually true.
I had a similar situation where they had cash from sale of house but also bk recently. I did not take years worth of rent because once they are past a year, you have nothing more. What I did was increase the security deposit to the max allowed by law inorder to protect me for the entire time they lived in the house. In the end, it worked out ok.
@John Jackson Jr my first mind says Don’t do It John! If they don’t meet your requirements, there should be no bending of your rules. I understand having a soft spot in your heart, but at the end of the day, unqualified is unqualified. Why not try to help them find a place that will accept it? Make it a win win. You don’t have to go through the evictions process, and they have a place to live for a year.
My second mind says Don’t do it John! For the same reasons mentioned in number 1.
@Jill F. He said he got done with an extremely messy divorce and he’s been living in a hotel. He expressed that he’s looking for something more stable while he tries to get back on his feet.
What are people posting about when they are talking about not changing the criteria regarding the limit to take 2 months rent.
The issue regarding taking more than taking two months or rent or taking more than two months of security deposits is a law and not criteria set by you. I never read about any law that stops a tenant from paying his rent for an entire year providing that you did not make that request. No sane tenant knows he does not have to pay his rent in advance.
I see more nays than yays in the posts and you if you can find better tenants very fast then deny him, but if the applicant wants to pay in advance and you lose a months rent because you refuse him then you just lost out on one of the benefits of accepting him. Maybe, he is the kind of tenant that will pay his rent a year in advance after his first year expires. Why should you care where his money comes from as long as he is not dealing drugs from your unit and he keeps the unit clean, quiet and safe. Maybe, he is a male prostitute and my Las Vegas homes had a few female strippers, but at least they converted their dollar bills to cashier checks and paid on-time every month. For all I know, they were bringing their clients to my homes, but I never got any complaints from the neighbors.
John, it really is always a red flag when they want to pay big money up front. It's an abnormal arrangement and there's usually something very shady behind it. If you can't clearly verify independently what is driving the abnormal offer, don't take it.
If the applicant doesn't pass the rest of your criteria then this doesn't matter at all. Your screening criteria are there for a reason and you will regret it every time you bend them to rent to a story. Also, you have to keep in mind fair housing laws. To avoid accusations of discrimination (and actually avoiding discrimination) you need to apply the same screening criteria to all prospective tenants regardless of their situation.
@Jill F. He said he got done with an extremely messy divorce and he’s been living in a hotel. He expressed that he’s looking for something more stable while he tries to get back on his feet.
@Jon K. Oh, I'll entertain a story. I rarely go for them but I'll usually hear a person out. It's tough out there. Finding a place can feel desperate. More often than not I can't help but sometimes I can and there are times when I've been able to point potential applicants in the right direction.
I can think of at least one situation where that guy might be okay. Does it apply to this guy? I don't know but I can think of an acceptable answer with the limited data shared, so if I had the time I'd listen to his story. I've been surprised at how much the tiny, little act of giving someone a moment of my time and listening can mean to a person looking for a place.
I really do believe that listening is also the key to finding great tenants, it helps you rule out the bullsh*tters. 3x the rent is a guideline that helps me determine if a tenant will struggle to pay rent. I've seen people that met that guideline that still would have struggled-- in one case due to large child support garnishments and I've seen people that didn't meet the guideline that were fine (often this is true for non-traditional graduate students). I feel like my process for evaluating applicants is both fair and defensible in court and I hope and expect that it will protect me in the relatively unlikely event that I face a discrimination lawsuit.
PS I think that 2.5x rent in gross pay is too low for the guideline.
@Jill F. Thanks Jill for the insight, this helps a lot. The reason my criteria are 2x and not 3x is due to me not being able to Reno this particular property yet. It’s not in bad condition, but it’s not up to my standard. Hence me lowering the criteria for the time being. My normal contractor is booked for the next 8 months. Being that I know he does work to my standard. I have no intention of looking for another contractor. I’m just renting the 4 units out until he can get in there and fix the place up. Then I will change my criteria to 3x instead of 2x.
I didn’t plan on bending my criteria for this particular person but I do know of several places that take people that are struggling. We all face unforeseen circumstances and deserve a helping hand here and there. But I was just curious as to the specific scenario of taking 12 months of rent from a tenant.
It sounds weird to me and I’m not going to be the one to explore said road. But I do at least want to help if I can.
@Jack Orthman Thanks Jack this answers my question! I’m not going to rent to him because he doesn’t fit my criteria, but I was curious as to why people don’t take 12 months rent upfront. Just me being curious.
@Jill F. He said he got done with an extremely messy divorce and he’s been living in a hotel. He expressed that he’s looking for something more stable while he tries to get back on his feet.
@Jon K. Oh, I'll entertain a story. I rarely go for them but I'll usually hear a person out. It's tough out there. Finding a place can feel desperate. More often than not I can't help but sometimes I can and there are times when I've been able to point potential applicants in the right direction.
I can think of at least one situation where that guy might be okay. Does it apply to this guy? I don't know but I can think of an acceptable answer with the limited data shared, so if I had the time I'd listen to his story. I've been surprised at how much the tiny, little act of giving someone a moment of my time and listening can mean to a person looking for a place.
I really do believe that listening is also the key to finding great tenants, it helps you rule out the bullsh*tters. 3x the rent is a guideline that helps me determine if a tenant will struggle to pay rent. I've seen people that met that guideline that still would have struggled-- in one case due to large child support garnishments and I've seen people that didn't meet the guideline that were fine (often this is true for non-traditional graduate students). I feel like my process for evaluating applicants is both fair and defensible in court and I hope and expect that it will protect me in the relatively unlikely event that I face a discrimination lawsuit.
PS I think that 2.5x rent in gross pay is too low for the guideline.
Absolutely nothing wrong with empathy or trying to help people, even in business. I understand the value of building a rapport with tenants as it makes property management a lot easier in many respects. Two things I would urge people reading this to consider:
1) I won't speak as to what is or is not defensible in court, nor the likelihood of you faced a discrimination suit because I'm honestly not smart enough about it to do so. However:
"Your application is not acceptable because you don't meet our income requirements"
Then you rent to someone else who also doesn't meet the income requirements because their story is the 1 in 100 that sounds good enough to you. What else is different about them? Family status? Race? Religious beliefs? You may have absolutely no clue which of these apply, if any, because you didn't ask (because you shouldn't). How would the rejected applicant or the court see it if it were to come to that? Regardless of the true likelihood of legal problem happening, you're asking for trouble for no good reason.
2) You defined your screening criteria, absent stories, in an unemotional state based on the minimum standards that you thought would qualify a tenant. Why would you ever accept someone who on paper will struggle to pay the rent based on those guidelines? What is the upside for your business? Sure you filled a vacancy but you're taking a risk by doing so. Why not wait for a qualified tenant that passes your screening criteria that doesn't need a story to justify their occupancy?