New to Real Estate · Iselin, NJ · Member since 2022 · 70 posts · 22 votes
I have 2 tenant applications. 1 makes 3 times the rent and the other makes barely enough money for rent. I am just concerned about collections. Please advise.
I guess the biggest question I have is are the collections previous or recent? Are they revolving credit or medical? Aside from making 3x rent have you dug anymore on the applicant? Previous landlord reference?
You should talk with the tenant to get their story. A credit report will show their current situation.
Have you established an application qualifying standard, such as a minimum credit score? Document that so you don't leave yourself exposed to discrimination claims.
Neither is a strong applicant. You can continue to take applications until you get one you like.
@Hemal Adani Personally, I’d be very cautious. Income at three times the rent is a positive, but ten collections and a credit score in the 500s suggest a significant payment-history risk.
Before deciding, verify whether the collections are recent, their amounts, and whether any involve prior landlords or utilities. Also review rental history, eviction records where permitted, employment stability, and landlord references.
Most importantly, follow the written screening criteria you established before receiving applications. If the applicant does not meet those standards, decline consistently rather than making an exception based on income alone.
If your policy permits conditional approval, a qualified guarantor or other lawful risk control may be considered—but only if offered consistently to similarly situated applicants and allowed under local law.
Depends on the rental property they are applying for AND the corresponding tenant pool.
If it's in a Class C or D area, then this might be the tenant pool and should be expected.
We deal with this all the time!
Application fraud is high and only getting worse.
SCORE-DRIVEN BACKGROUND CHECKS DO NOT WORK WELL WITH FICO SCORES UNDER 620! Make sure you get a background check that shows you every tradeline, with criminal & background check, as well as all addresses applicant has disclosed in last 7 years. - We cross-reference the last 3 years of addresses against addresses on application, paystubs, W-2 and bank statements.
Be careful of applicants with only Chime or Student Loan tradelines. They're pretty much worthless.
VERIFICATION OF RENT: major importance! Common application fraud is to hide current landlord by claiming they "live with relatives". - This is also were we use the history of addresses on the background check. We use Public Records to find the owners of the addresses in the last 2-3 years, then a Whitepages account to find their cell and contact that owner to see what they know about the applicant. - If an apartment building we use Google Streetview to view the outside of the building for signage with a phone number we then call.
2-YEAR WORK HISTORY 2ND MOST IMPORTANT VERIFICATION! How can you consistently pay rent on-time, when you don't consistently work? - REQUIRE each applicant fill out COMPLETE 2-year working history! Many will complain, but do not bend. - Get latest YTD paystub, W-2(s). Since at least 90% of employers now pay via direct deposit () use bank statement to cross-reference payroll deposits to catch frauded paystubs & W-2s. There's often additional interesting info on a bank statement - if you know how to intrepret the data. - Also, average their income over at least 3-4 months, do NOT assume they always work 40 hours/week, 52 weeks/year! ---Easy to do with a YTD paystub after April of any year, but Jan-March means you should average YTD paystub AND last year's W-2. ---WHY? Many jobs ebb & flow on working hours seasonally or have layoffs. Also, some applicants have ongoing medical issues - or just miss a lot of work.
USE DEBT-TO-INCOME RATIO INSTEAD OF SILLY INCOME = 3X RENT! What do you think a tenant will prioritize, rent or car payment? - Many will prioritize their car, because they need it for work and they know their car can often be repossessed faster than they can be evicted:( So, why ignore the car payment - which the silly, income must = 3x rent does?
Don't be afraid to require an ACCEPTABLE cosigner if an applicant doesn't meet your requirements! - Every month we get a few applications where the applicant has little to no credit, lives at home (verified), has only been on their current job a few months and has no stable work history. --- Why would any landlord take a chance on them without a strong cosigner? - The other type of application we get that we carefully scrutinize is the applicant living at home (verified), has little to no credit, has a steady job, but ZERO savings. You look at their bank statement and see they've got collections they should be paying off, but they're spending their money on doordash, casino, clothes, etc. --- What are the chances they are going to suddenly change their lifestyle and somehow pay $1,000 or so in rent consistently?
I would pass on both, and here is why. The first applicant fails the number one rule of screening: rent history matters more than income. Someone earning 3x rent with 10 collections has shown, repeatedly, that they do not pay what they owe. High income does not fix payment behavior, it just means a bigger unit they stop paying for.
The second applicant barely meeting income is a different risk. One car repair or one medical bill and the rent is the first thing that slips. The standard bar is gross income of 3x rent for a reason, it is the buffer.
Neither one clears the bar, so neither one gets the unit. A vacant month costs less than an eviction. If you are under time pressure, widen the net: better listing photos, more sites, a small rent incentive for a strong application. The wrong tenant is the most expensive decision in this business.
Also verify independently: call previous landlords yourself, and pull a real screening report rather than trusting what they hand you.
Develop your screening criteria and execute it for each applicant as @Drew Sygit suggested. The key here isn't just to have the screening criteria but to actually do the screening.
Once an applicant turns in all of the documentation then and only then will my team start our process. We call the current and previous landlord. Look at their driver's license and see if the address matches one of the addresses they claim as home.
Funny thing we had an applicant put a friend down as their current landlord but that friend was actually a tenant in one of my other properties. Small world.
We verify employment by calling the company / HR rep. Recently our software caught a fraudulent pay stub. We don't depend on the software, we make the calls, but it's good to have.
Develop a Rubric by which each tenant gets scored. Let that tell you if the applicant is approved, denied or has a conditional approval.
You want to be consistent on how you screen. Not sure how many units you have, but if you scale this will be key.
Two years ago, the software company I use, Equifax or Transunion and I were sued because I denied an application. Prospective tenant claimed I violated the Federal Credit Reporting Act...Long story short, I was able to show we didn't deny them based on their credit report, it was based on their current landlord's response to the questions we ask every landlord.
Imagine not having a system where this information is kept, and having to dig and/ or try to remember why you denied an application? Build the system now and let it work for you. There are tools out there.
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