Potential Tenant - but high debt - should I be worry?

Question

I am working with a potential tenants. A single dad raising two kids. Not perfect credit score, has three dogs. Been renting apartment for severall years.

I am not worry about the low credit score, since he has shown me in the last year he has advanced in his job and is making twice of what he did before. Stable job with a tech company. Just wanting a bigger place for his kids, and stay close so they can finsih at same school in few years.

Nice guy.

But what concerned me the most is that he has taken 6 loans (ranging from 2k to 20k) in the last few years. Also he has several revoling credit cards (around 11 from various banks, credit unions, and stores) he said he is slowly paying off. Total debt is 1.2 times of his current salary. Based on the inforamtion he provided, he would be using one of his pay check each month on paying off debt. Which leaves him one check to cover the rent with $800 left to spare each month (he makes around 3.2k per check)

Now he also earns commission. Estimated - by him - to be 2k a month. He said he will have enough to cover for all other expenses.

He and his kids are so nice, and I kind of wanting to help someone get back on their feet. My rent is already a little lower than what is currently on the market.. But wife is more logical and she is worry.

Matt M. · Answer

He could make $1mil year, have an 850 credit score with no debt, and I still wouldn’t take him with the 3 dogs.

Randy Gutierrez · Answer

Since you mentioned it is a Class A property, this is 100% a pass. Do not put a Class C tenant in a Class A property. You are looking for a tenant where it is not even debatable.

In the lower class properties you obviously have to lower the requirements and at times one has to look at the things collectively. There is definitely more to debate as it will be very rare for tenants to hit all requirements out of the park.

Drew Sygit · Answer

@Steve Tom some interesting comments so far.

Credit scores are NOT everything. Although they can be a great "leading indicator", it really depends on the property.

If you have a Class C property (by our definition), then no way are you getting applicants with great scores. We anticipate Class C applicants to have under 600 FICO scores.

Class B properties we expect applicants to have FICO scores 600-680.

Class A 680+.

If we assume you have a Class A property, questions:

1) How did you verify he has a stable job? By believing what applicant put on their application?- Get last year's W-2 for proof

2) How are you validating what his stable monthly income is?- Take YTD paystub and divide by number of months via End Date, NOT Paid Date. This will also average out the commissions you say he's now getting.

3) Get in writing why he took out the loans. - If he won't take the time to put it in writing, then he's not serious.

4) How are you verifying the 3 dogs are well-trained?- To make sure they don't tear up your property, you'd better get great references from last 2 landlords. You may also want to make a surprise visit to current home to see how their current home is being taken care of and if any damages. How their current home looks is how yours will look after they move in.

Everyone deserves a chance, but they have to understand they may have to jump through some hoops to get what they want.

Steve Tom · Answer

Very good insights. Thanks everyone.

It is a Class A property in a very sort after community. He did provided me with six months of W-2, and he has been with current employer for a year. I was able to verify that by contacting their HR.

However, he didn't want to explain to me why he took out all those loans, or how much he will be paying down those loans or cc debts, except he will get his finance in order and do it slowly.

Yah, that many dogs really worries me. He did promised he will get a house maid to clean the house monthly, and promised to keep the yard clean and in order.

Wife and I had a talk last night, and she vetoed his application. So I will tell him I am sorry today.

Issac San Miguel · Answer

agreed. coming from the property management world, credit score is a huge indicator of how someone will pay their bills, rent included.

if you still want to take a chance at it, verify his payment history with his current apartment community, they will gladly give you the info.

Scott Trench · Answer

I have yet to come across a post on this forum that involves a bad tenant, who had a good credit score.

I’m sure it’s not perfect, but credit score seems to be the closest thing we have as landlords to assurance that the tenant won’t cause problems and will pay on time.

All the issues you discuss with debt - these are showing up on the scoreboard (his credit score).

It’s simple, objective, and fair. It’s something you can apply consistently. I would not waver on this requirement.

Moses Bowie Russ · Answer

Contribute to your community and the world. Outside of your business. You're asking because you see all of these red flags.

- Burnt Landlord

Hunter Gibson · Answer

personally I would not let him rent my place. You are the one who is taking on all the responsibility of the Morgage. If people don't save and understand money when they are poor, giving them more money will not solve the problem. Most likely it will get them into more debt.

Potential Tenant - but high debt - should I be worry?

Most Popular Reply