All Forum Posts by: Hannah Liu
Hannah Liu has started 3 posts and replied 18 times.
Thank you everyone for your responses! I’m not able to thank each of you individually, but I’d like to summarize what I got from my PM and share my overall strategy based on what I learned from your replies. Hopefully this case can also be helpful for other LL.
I’m currently leaning toward passing on this candidate, but since I don’t have other strong options right now, I’ll probably continue doing some DD work, if nothing else, it’s a good learning opportunity and maybe even a good test for my PM.
1. I didn't interview this tenant in person but my PM did.
2. This candidate previously owned a house, so there’s no rental record.
3. He said his low credit score was due to losing a lawsuit. He filed for Chapter 13 bankruptcy and sold the house to pay off the debt. I’ll ask for a discharge letter or closing statement to verify that. I'll also ask for previous house ownership record.
4. I'll ask for his DTI ratio (and include child support and possible alimony as part of the debt).
5. I’ll also have my PM pull active tradelines to check how many have at least 12 or 24 months of history—hoping to see some pattern before the bankruptcy.
4. I’ll ask my PM to get employment verification and paystubs.
6. ChatGPT suggested starting with a 6-month lease and asking for double deposit—might be a good way to reduce risk.
7. It also mentioned setting up auto-pay. I’m not sure how to enforce that yet, but will look into it.
Hope these won't scare my PM away. Also this tenant hasn't submitted the formal application, so hopefully it won't scare him away either.
Some other principles I learned:
1. vacancy loss is better than bad tenant
2. lower rent is better than lower your criteria.
Appreciate all the shared experiences—really helpful for someone still learning through real cases. @Jason H. @Thomas Talbert @Jo Bradley @Rick Albert @Dan H. @Kate Sanchez @Adam Bartomeo @Chris Seveney @Marcus Auerbach @Michael Smythe @Amit Patel @James Mc Ree @Russell Brazil @Thorne Ellis
Quote from @Michael Smythe:
What specifically has your PMC verified?
1) Proof of lawsuit lost?
Easy claim to make with no proof!
2) Owned a home with ex-wife?
Was it owned free & clear?
Public record check should verify ownership and any mortgage!
3) Ex-wife?
Is he paying any child support or alimony?
If so, how are they being accounted for in the traditional, "income = 3 x rent?
4) Income looks solid?
What does that mean?
2-year work history verified?
What is average monthly income based upon YTD paystub?
How does that average compare to 2024 W-2 monthly average?
4) What is Debt-To-Income Ratio (DTI)?
Income = 3x rent does NOT truly factor in what a tenant can afford:(
DTI is MUCH more comprehensive!
5) How many active tradelines are on the credit report?
How many at least 12 months of history reported?
How many at least 24 months of history reported?
Many tenants are getting Chime & Kickoff accounts that skew FICO scores:(
Thank you @Michael Smythe so much. This is exactly what I need.
Quote from @Adam Bartomeo:
We use several indicators to understand if a tenant is qualified. One of those is their credit score but being below your "minimum" should be the end all be all of the application. It should be used in conjunction with all of the other criteria - income, debt to income, evictions, background, etc. We would ask for advanced rent with a lower credit score and place the tenant IF there weren't any other flags.
Thank you @Adam Bartomeo do you think 620 is a fair minimum score i should target? My property is a new build and i wish to get some good quality tenant.
Quote from @Kate Sanchez:
@Hannah Liu If income's solid, a double deposit could work. Maybe also verify employer, ask for references, and do a background check for peace of mind. Good luck!
Thank you @Kate Sanchez
Quote from @Dan H.:
Your PM gets paid for placing a tenant. They are incentivized for taking any tenant.
I personally would not rent to even your 620 minimum. Double deposit means $hit. How do you think you will be able to collect if they cause $10k damage and do not pay rent for 2 months.
What gives the LL leverage is the ability to ding the tenants credit score. If their score is already $hit, the LL has no leverage
It is better to accept lower rent to obtain a well qualified tenant than to obtain top of market rent to obtain a $hit tenant.
I have had rentals many years in class c to B+ and I have never paid cash for keys or had a tenant fail to pay any significant amount of money. This is both luck and our good screening. This screening includes ensuring that the tenants credit score is high enough that dinging it will have consequences to the tenant.
Good luck
@Dan H. Thank you. How long are you willing to wait if you can’t find a qualified tenant? Would you consider adjusting your criteria? I can cover expenses without rental income for a few months, but I’m unsure when I should relax my requirements.
Quote from @Jason H.:
@Hannah Liu I completely understand the urgency of filling a unit with whatever tenant that comes along, but if I can pass on some hard lessons learned from one landlord investor to another, it's better to wait for someone who meets your minimum criteria.
I have been through no less than three PM's before I finally decided to self-manage. I've had many problematic tenants that were hastily placed by my PMs who just didn't care and what happened? Evictions, harassing other tenants in the building, damage, unpaid rent. You end up in the red through the life of their tenancy.
While not all tenants with bad credit will end of up this way, nor will all great tenants be guaranteed to stay great - but you're just taking a chance when you prioritize non-vacancy over quality. Yes, you get that first rent check dopamine hit, and maybe the second and third months get paid, but then things begin to slip and signs of your prior hesitancy over a 580 credit score start to materialize.
While days on market depends on a lot of factors like price, unit type/condition and location, some of my units remained vacant for a few months only because I decided to wait until the right (not to be confused with 'perfect') tenant came along and so far it's proved beneficial.
I've been there and trust me it's not worth it.
@Jason H. that's a great strategy. I also believe that good quality tenant is important. I'll do more DD work to ensure this one is good. Thanks again for your input!
Quote from @Rick Albert:
There are a couple of ways to look at this:
1. How does losing a lawsuit bring the score down so low? There has to be other reasons.
2. Are they willing to sign up for a service that boost their credit score through monthly payments? Front Lobby is one company (I have not used them before).
3. If they have debt, what is the overall debt to income ratio? Someone could be making $100,000/year but have $75,000/year in debt.
Thank you Rick. I actually asked the same first question. The other two are great points too—I'll have my PM follow up on those. Appreciate the insights!
Thank you Jo. Those are great advices. I'll chase down to my PM to get all those info, if not i'll try to figure out myself! Thanks a lot!
Thank you for the advice Thomas, can you elaborate a bit more about the delinquency process?
My property’s been sitting vacant for a month now, so I’m really hoping to find a tenant soon. My property manager just sent over a potential renter, but his credit score is 580—below our 620+ requirement. The low score is due to a recent lawsuit he lost. He also doesn’t have any rental history because he used to own a home with his ex-wife.
On the plus side, his income looks solid, and the PM suggested we could ask for a double deposit to offset the risk. Does that sound reasonable? If not, what other due diligence should I be doing here? Appreciate your advice.