First rental house and first tenant - Posted by Bob

Posted by phil fernandez on November 13, 2000 at 22:31:50:

Don’t do it. Take it from a guy that has been renting to tenants for pushing 25 years. The car repo and bankruptcy bothers me. It shows an indication that they don’t have a problem sleeping at night if bills are not paid.

First rental house and first tenant - Posted by Bob

Posted by Bob on November 13, 2000 at 20:42:52:

I am trying to rent my first rental house and received an application from a potential tenant. Ordered a credit report from My question, being new at this is how to evaluate the tenant.

The credit report for the husband lists a Beacon 96 score of 562, wife 583. The summary for both is serious delinquency, amt owed on delinquent accounts, proportion of balances to credit limits too high, and time since delinquency is too recent or unknown. He was upfront about the bankruptcy in '97, and the reason they are renting is because they sold their house due to the $1643 house payment. The rental payment will be $1200. Without the house the balance of revolving credit is only $4K. The report also shows a car lease repo balance of $8311. Many balances were w/o with the BK. This man’s son and in-laws will be living here also and he will give me an application and fees for them if he passes credit. He did not want to risk another $50 if he was rejected.

Your advice and opinions on this tenant will be appreciated. Not very many calls came in on this rental and I don’t want to turn down a potential tenant, unless unavoidable because the place is vacant. Maybe with four adults on the lease they can scrap enough together each month to pay the rent?

Your expert advise please or any suggestions.

Re: First rental house and first tenant - Posted by JPiper

Posted by JPiper on November 14, 2000 at 03:41:14:

No firm answer, but a few comments.

First, a bankruptcy would not in and of itself rule someone out for me. The first obvious thing is that bankruptcy eliminates debt (providing it’s Chapter 7). Therefore, a fresh bankruptcy filing produces a tenant with no debt, and therefore more likely to be able to pay rent.

What I like to do is to find out the reason for the bankruptcy, and determine whether that reason has been dealt with. If the underlying reason is no longer there, then the situation may be entirely different. Medical bankruptcies for example are common when confronted with medical emergencies. Perhaps job loss and overindebtedness caused the problem…now they have a new job and little debt. Look at the reason.

Also be aware that while bankruptcy is a negative, one positive coming out of it is that you can’t file a Chapter 7 for the subsequent 7 years.

In this case the tenant has $4K in debt according to your post. Sounds like he may have reestablished some credit. How has that particular credit been handled? If it’s timely then that tells you something.

One thing you’ve left out entirely is income. I would want to see total gross income of 4X the rent from the prospective tenants. What type of jobs do they have? Salaried positions with well-known companies are collectable if they don’t pay the rent. Chances are if they are decent positions with some tenure, they won’t just leave to avoid your judgment (following an eviction).

I think it’s too easy an answer to simply rule someone out based on bankruptcy or other credit difficulties. Look at the underlying reasons. Moving down in payment is a positive decision sometimes, that may ease financial burdens. Even banks will make mortgage loans to people with bankruptcies after a couple of years. What they want to see is a positive experience following the bankruptcy.

Again, look for the underlying reasons for problems…see if that has changed. Look at the income.


Re: First rental house and first tenant - Posted by Mark

Posted by Mark on November 14, 2000 at 03:10:32:

I’d be extremely cautious. His son and in-laws credit reports are probably bad or why would they risk $50 by starting with his credit report? Also, his credit report is bad. Why even get one if you are going to ignore obvious problems? If you are really concerned about the place sitting vacant, you might want to tell him that you will consider renting to him if his son and in-laws reports are excellent and they will sign on the lease. See how he responds. Otherwise, I’d definitely pass. The only thing worse than a vacant rental is a rented unit filled with non-payers. They usually don’t take care of the place and they will cost you money.
Good Luck