Take full years rent from unqualified tenant?
New to Real Estate · Minneapolis, MN · Member since 2020 · 14 posts · 12 votes
Take full years rent from unqualified tenant?
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Omaha, NE · Member since 2020 · 612 posts · 665 votes
5yDon'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!
51 Replies
- New to Real Estate · Minneapolis, MN · Member since 2020 · 14 posts · 12 votes5y
@Jon Kessler
Great point, I am with you 1000 percent. I wouldn’t want to mislead someone else looking for similar answers by making it seem as though, I am considering breaking my criteria just to fill a vacancy. I’ve never been one to gamble nor am I going to start with rental properties. I merely wanted to pick someone else’s brain to see if they could make sense out of this scenario. Thanks for the input.
- Gillette, WY · Member since 2017 · 149 posts · 68 votes5y
Originally posted by @Account Closed:
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.
very hard not to have a big heart. You obviously have rules for a reason though, right? What is more important thought? Your business or the warm feeling of "helping" someone who you must have a sketchy feeling about? (otherwise you would not be asking this question) I have a friend who was forced into being a landlord. His big heart has helped him put people into his rental that do not match any criteria at all. (Past evictions, terrible credit, ect.) This action has put him and his family behind financially. Hope this helps.
- Property Manager · Northeast Indiana · Member since 2013 · 46 posts · 38 votes5y
It doesn't seem like anyone has mentioned the bigger accounting issue here: Pre-paid rent is a liability on your balance sheet. It's not income to you (it aint yours) until the month it is owed. So you're just holding the money in escrow until the month each installment is due. I've never witnessed it, but if you were to somehow breach the lease, he moved, and asked for his pre paid rent back, a court would probably compel you to return it.
Originally posted by @Jon K.:
Originally posted by @Jill F.:
Originally posted by @John Jackson Jr:
@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?
Your second point makes it clear that you did not get my point (regarding screening criteria). This is not an 'emotional' issue or decision and I never said (or implied) that I would listen to a story and make an emotional decision to rent to an unqualified tenant.
My point is that 3x rent is not a good hard and fast rule but it **is** a useful guideline. The point of screening is to identify tenants that can comfortably afford the unit not to rule people out (or in) based on an arbitrary guideline. My goal is to find tenants that are are *ACTUALLY* able to comfortably pay the rent not tenants that meet a certain criterion.
- Flipper/Rehabber · Brentwood, CA · Member since 2021 · 14 posts · 12 votes5y
You never know. Maybe PT’s employer was an abusive dirtbag, and PT received a lump sum settlement from said hypothetical employer. Maybe PT is still suffering from PTSD, preventing him from re-entering the workforce. Can’t speak to John’s question regarding whether accepting upfront rent (in MN?) would affect eviction based on other bases.
Anytime I have ever allowed an unqualified tenant they have immediately started breaking lease terms, causing damage, etc. I wouldn't entertain the thought in the slightest. You may have rent in hand, but you may end up hurting your bottom line through damage or other events.
- Rental Property Investor · Raleigh, NC · Member since 2016 · 396 posts · 995 votes5y
Q: Why do you have a screening criteria of 2x rent and 650 credit score in the first place?
A: To make sure that they are capable of paying the rent, in this case the rent is already 100% paid. So what exactly is the problem?!?!
When you go to buy a car, if you finance it the dealership is going to run your credit and financials. But if you pay cash the dealership isn't going to screen you, because there's nothing to screen... They already have their money! This is no different.
It astounds me that people don't want to accept cold hard cash. Who cares what their income is if you already have 100% of the owed money in your pocket. We've had over a year+ of people being unemployed due to mandated shutdowns, deadbeat tenants not paying rent because of eviction moratoriums, and you are 100% shielded from this and still don't know if it's a good deal?
At the end of the 1 year simply ask for proof of income and have him go through the screening process again or you simply non-renew his lease and find someone else that meets your original screening criteria. Easy peasy.
I couldn't find it, but there was a post similar to this one, asking if anyone had ever had any negative experiences with accepting 1yr prepaids, it was a very popular thread and of the dozens of responses of people that had accepted the prepaid rent, not a single one of them had any significant issues with the tenant. In fact most of them in retrospect thought it was the greatest thing ever since they never had to worry if the tenant was actually going to pay on the 1st or not.
As for illicit activities, y'all are some judgmental folk if you think that anyone with a little bit of savings is inherently selling drugs. And if you are so overly concerned about a meth lab in the basement, it's not like it's that difficult to do a home inspection every few months. "I need to check the batteries in the fire alarms and change the filters," gets me into a house whenever I feel like it.
Check your local statutes concerning prepaid rents, typically you need to hold it in a separate bank account and slowly transfer it each month as you 'earn' it. If laws allow it, also add a clause that says any prepaid rents may be used for rent, or any other sums due under the lease. That way the prepaid rent can be used for excessive damages should they immediately mess your place up (unlikely they damage it, but best to still cover your bases).
- Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes5y
The "pay 12 months at once" thing has never sat well with me. Perhaps it's stereotyping, but I do think the money oftentimes comes from illegal activity (usually drug dealing). I would stick your screening criteria.
- 5yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
You managed to miss the larger point. The people advising him to pass on this are not talking about the money as much as the possible issues with the tenant......
- Vacaville, CA · Member since 2019 · 218 posts · 140 votes5y
@John Jackson Jr
Drug dealers often times have that kind of money to pay upfront. Why take the chance?
- Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes5y
If times are hard, how does he happen to have two months of rent? If he has been out of work, how does he have two months of rent saved? If he has money, why does he not pay his bills? If he has money why is his credit score low? If he cannot prove he has income of 3 times the rent, how does he have two years worth of savings?
To me the answer all points to the same word---drugs. He makes them, grows them, sells them, stores them, uses them...you choose which ones, maybe all.
How do you get a druggie out of your house before it is destroyed or seized by to police if he has prepaid rent for two years? You do not! And no one will rent to him after you, so he won't be going anywhere willingly.
- Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes5y
Originally posted by @Jim K.:
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.
I was expecting a grow house, full of illegal plants, and growing mold on the walls everywhere!
- Member since 2021 · 237 posts · 153 votes5y
@John Jackson Jr
No good can come of this. MAYBE, after a year of impeccable tenancy I would consider this. And even then, only if C-D class where a tenant has the brains to realize they suck at managing the money they’ve come into suddenly from an inheritance or similar.
NEVER, start a relationship this way.
- Investor · Malakoff, TX · Member since 2017 · 2k+ posts · 2k+ votes5y
If you're a professional and real estate is a business for you, have policies and stick with them.
- 5yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Originally posted by @Lynnette E.:
Been there, seen that........ Not good.... :-(
- Rental Property Investor · Raleigh, NC · Member since 2016 · 396 posts · 995 votes5y
Originally posted by @Bruce Woodruff:
You managed to miss the larger point. The people advising him to pass on this are not talking about the money as much as the possible issues with the tenant......
Go ahead and name one legitimate reason that you think that this person is statistically more likely to cause issues than any other random tenant. I eagerly await your answer. I've had doctors trash a place, and section 8 tenants treat the place better than I would have.
I've seen multiple people in this thread comment about how he could potentially be a drug dealer since he has extra cash. There are hundreds of plausible explanations why he has extra cash. To simply jump to conclusions and assume that he is a drug dealer since he has extra cash means I must be El Chapo himself. Covid and a recent divorce are completely legitimate reasons for someone's situation to have been turned upside down. For all you know he was a successful baker who lost his business when the government shut him down, and his vindictive wife ruined his credit via joint accounts. Those people not commenting about him being a drug dealer, are instead simply parroting "screening requirements are requirements", even though the screening requirements that this tenant fails are not currently applicable since he is prepaying rent in full, and therefor his other financials are completely irrelevant.I mean do you honestly think that screening a credit score and income requirements means that the person is more likely to treat the property well? Those screening requirements are there to make sure the rent gets paid on time, and nothing more. If you wanted to screen how well someone might potentially take care of the house, you would instead do things like look inside their car when they come to check out your rental. Is there mounds of trash and fast food boxes left inside the car? Or do they keep their car relatively clean. Does he have children? And if so how well behaved are the kids. Does he have a new live in girlfriend that will also be on the lease? Drive past his current residence and see is the lawn mowed and well kept? Did you call their landlord from the 2nd to last place he lived and ask for a recommendation? (2nd to last since if they are actually a bad tenant the last landlord will likely just lie and give them a glowing review, anything just to get them out of his rental).
You're only argument is "that's not how it's usually done, and something feels fishy". Covid has had millions of people unemployed, and a divorce can easily screw with a credit score. There really isn't anything fishy about it. He is offering the money up front because he knows that based on his current situation of being unemployed, that no landlord will ever accept his application...ever....period....end of story. So the only way for him to find lodging is to incentivize the landlord and simply prepay the rent, thus showing that even though he is unemployed he is not a financial risk.
In landlording there is really only two risks a tenant poses. That they won't pay, or that they will cause damage to the property. In this situation you are 100% shielded from the first risk, and seem to be inventing reasons why this person might, potentially, theoretically, maybe be more likely to cause other issues.
In todays current society of eviction moratoriums, stimulus checks, rampant unemployment, and deadbeat tenants, would I be willing to dig a little deeper into his screening if I was 100% guaranteed to get my money in full? You better believe I would!!!! - Rental Property Investor · Saint Louis, MO · Member since 2018 · 229 posts · 279 votes5y
I was given great advice by an amazing landlord once - Tenant screening should be very black and white. They either qualify or they don't. If you find yourself waffling, you're bending your standards more than likely. This person doesn't qualify. Period, move on.
Also, regarding your lowering your income requirement due to the condition of the property - I would do this differently. Lower the rent amount but keep your 3x monthly income req. Think about it - it's HARD to pay all of your bills if your rent is half of what you bring home.
- 5yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Originally posted by @Ben Zimmerman:
Originally posted by @Bruce Woodruff:
You managed to miss the larger point. The people advising him to pass on this are not talking about the money as much as the possible issues with the tenant......
Go ahead and name one legitimate reason that you think that this person is statistically more likely to cause issues than any other random tenant. I eagerly await your answer. I've had doctors trash a place, and section 8 tenants treat the place better than I would have.
I've seen multiple people in this thread comment about how he could potentially be a drug dealer since he has extra cash. There are hundreds of plausible explanations why he has extra cash. To simply jump to conclusions and assume that he is a drug dealer since he has extra cash means I must be El Chapo himself. Covid and a recent divorce are completely legitimate reasons for someone's situation to have been turned upside down. For all you know he was a successful baker who lost his business when the government shut him down, and his vindictive wife ruined his credit via joint accounts. Those people not commenting about him being a drug dealer, are instead simply parroting "screening requirements are requirements", even though the screening requirements that this tenant fails are not currently applicable since he is prepaying rent in full, and therefor his other financials are completely irrelevant.I mean do you honestly think that screening a credit score and income requirements means that the person is more likely to treat the property well? Those screening requirements are there to make sure the rent gets paid on time, and nothing more. If you wanted to screen how well someone might potentially take care of the house, you would instead do things like look inside their car when they come to check out your rental. Is there mounds of trash and fast food boxes left inside the car? Or do they keep their car relatively clean. Does he have children? And if so how well behaved are the kids. Does he have a new live in girlfriend that will also be on the lease? Drive past his current residence and see is the lawn mowed and well kept? Did you call their landlord from the 2nd to last place he lived and ask for a recommendation? (2nd to last since if they are actually a bad tenant the last landlord will likely just lie and give them a glowing review, anything just to get them out of his rental).
You're only argument is "that's not how it's usually done, and something feels fishy". Covid has had millions of people unemployed, and a divorce can easily screw with a credit score. There really isn't anything fishy about it. He is offering the money up front because he knows that based on his current situation of being unemployed, that no landlord will ever accept his application...ever....period....end of story. So the only way for him to find lodging is to incentivize the landlord and simply prepay the rent, thus showing that even though he is unemployed he is not a financial risk.
In landlording there is really only two risks a tenant poses. That they won't pay, or that they will cause damage to the property. In this situation you are 100% shielded from the first risk, and seem to be inventing reasons why this person might, potentially, theoretically, maybe be more likely to cause other issues.
In todays current society of eviction moratoriums, stimulus checks, rampant unemployment, and deadbeat tenants, would I be willing to dig a little deeper into his screening if I was 100% guaranteed to get my money in full? You better believe I would!!!!Your ramblings aside......the OP asked for advice and we're giving it to him. I would not rent to this individual. (Even though I've been in his shoes before). Business is business and the screening requirements are there for a reason.
If you want to rent to people like this, go ahead, you could even advertise specifically to these kind of people..."APT FOR RENT- Credit score is irrelevant as long as you pay a year upfront"
- Rental Property Investor · Raleigh, NC · Member since 2016 · 396 posts · 995 votes5y
Originally posted by @Bruce Woodruff:
Your ramblings aside....
So for the record, you are not able to explain why this person is statistically more likely to cause issues, or why your financial screening techniques are relevant for someone who is prepaying?? That's too bad, because I was rather looking forward to you attempting to justify running a credit check on someone who is paying cash.
- 5yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
Originally posted by @Ben Zimmerman:
Originally posted by @Bruce Woodruff:
Your ramblings aside....
So for the record, you are not able to explain why this person is statistically more likely to cause issues, or why your financial screening techniques are relevant for someone who is prepaying?? Roger that.
Not able (you know there are no stats on a speculative like this). Not willing. Don't really care. I don't have any financial screening techniques, I just go with my gut. Gut says no on this one..... Over and out.
- New to Real Estate · Minneapolis, MN · Member since 2020 · 14 posts · 12 votes5y
@Jennifer Donley
Thanks for the insight, much appreciated!
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes5y
To every rule there is an exception.
If it were just a lack of income, then I would consider accepting him with payment of rent in advance. But when it's a lack of income and terrible credit, then that's too much risk and I would move on.
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