In this market, many of the people that are losing their homes to foreclosure are applying to rent property. This is either a great opportunity for landlords or a mine field that will eventually catch the landlord and blow them up.
Our company has decided to take a middle of the road approach.
We look at the applicant to rent a house from all angles. If the person applying to rent has sufficient income (there is no substitute for legal and verifiable income) and good credit we will consider them for renting a home from us.
However, if the person wanting to rent has lots of bad credit, we do not feel we can take the risk. This person has let all facets of their life go downhill and there is no way to know if it is all legitimate or if they are just a bad risk.
We will take people that kept their credit good, but lost their house. This family is a least trying and should be considered for renting.
Great perspective Robert...
Its very important tp analyzize a potential renters situation to figure out if there is a way to make it a win win for all parties involved. However, sometimes its not worth the risk of your investment.
It is definitely a tough situation, you seem to have gotten a good handle on it.
All the best!
I've grappled with this problem, also. Someone who is losing there house is likley to have more bad credit than just the house so it takes some judgement. Trouble is, as a property manager you need to have as objective a standard as possible to keep yourself legal.
I'm with Joe.....if they have lost their HOME, chances are they have bad credit and other debts and they will have bankruptcy attorneys/services sending them flyers the minute their lender serves notice......Other than a FIRE or DEATH in a property, there is NOTHING WORSE than having a tenant declare bankruptcy.....it is a hassle and hard to explain to the property owner and the property manager will be blamed since there were obvious signs in the applicant's/tenant's credit history.
If applicants are local, I check their credit report for former addresses and then run those addresses through our local MLS....some extra steps in the process may save a world of disappointment a few months down the road.
Robert,
Great Post !!! I have been talking about this with other fellow agents. The market will be led by a majority of renters that have lost their home and consequently their credit. You make a great point in this post, we have to look at the overall picture and the rest of their credit ratings. Otherwise, these tenants will move every three to four months eviction after eviction, and live for free for a long time.
Robert If the only reason for the foreclosure was the esvalation and all other factors are OK I would rent - no reason not to, Karen
That's good to know, Robert. I imagine many people are having a hard time trying to find a place to rent. Also, I referred somebody to you today who is looking for a vacation rental. I don't know if you handle those or not . . .
Elizabeth, I will try to refer them, we do not handle vacation rentals. Thanks for thinking of me.
Bob
That makes sense to me! A one time deal is one thing but you have to watch for the habit :o(
Check out this blog from the Real Estate Law group where agents are advising clients who are loosing their homes in foreclosure to RENT before they declare bankruptcy.....As property managers, we need to be on top of this type of "advice" and protect out client property owners from the hassle and potential for loss of income!!!
http://activerain.com/blogsview/355925/Losing-Your-Home-Filing
Wallace, Thanks for the link. We rent to people who retained their good credit through the foreclossure so hopefully the bankruptcy is not in their plans. But, you never know for sure what will happen.
In a prior life, I owned a property management company. Generally, with a double security deposit, we would grant some of the "iffy's" tenancy. A double security deposit usually allowed for the eviction process to take place without losing income if they stopped paying (we always filed on the 6th if rent was not received -- then, if they paid later, we'd cancel the rent court appearance). Of course, after the eviction, you're sitting on an empty asset that is not producing any income. There were a few units that were "challenging" and it got to the point where it was smarter to take a moderate risk than let it sit there forever without a tenant. In those instances, I left it up to the owners to make the final decision. They appreciated that I did the screening and then let them make the final decision based on my findings and my suggestion to them.
I always viewed the double security deposit as someone showing genuine interest in paying their debts.
Also, in a prior prior life, I worked hard in corporate America for peanuts. I *HAD* to live beyond my means, which wrecked everything for me. Back then, I used a saying that was absolutely true: "I will always make sure I have a roof over my head, a car to drive and food to eat ... everything else is negotiable!"
As for a foreclosure -- you just have to do your due diligence. I know plenty of otherwise smart people who made some DUMB decisions when it came to homebuying -- they got caught up in the frenzy like so many others.
My sister is contemplating renting her house in Colorado (that they have not been able to sell.) I told her that she needs to use a property manager and your point brings up why I think she needs to heed my advice. This is a tough issue and a professional needs to be the one sifting through it.
I could not agree more. For those reluctant to us a professional property manager they could hire one to just find a tenant or call the local apartment association for education, assistance, and forms.
Property managers in my area RARELY do lease-only services any more...it is hard/costly to provide marketing contenuity (floror plans & vacant pics) and the PM often gets to referee between property owner and tenant at move-out/deposit return....too much liability for too little $$$
As a large multifamily property manager and CPM for 26 years I was very successful with the following procedures with respect to marginal credit acceptance and tenant selection.
1-My experience in bankruptcy which is pretty extensive...it is against the law to "incur further debt", meaning if you file bankruptcy, you do NOT get a "free ride" in an apartment you're park in. In fact, you have additional protection by the very fact they cannot incur additional debts.
2-Everyone has to live some where and character of the person outweighed the credit report. I looked at the "history" pattern of the credit report. Did they have accounts for 5 years and rarely ever an "over 30"? Or did they have a multitude of debts all over their history and always running behind with someone.
3-Understanding people get very ill and run up huge medical bills, lose their house, etc. and are otherwise standup people that had a blip in life. Those you extend help to in my experience DON'T FORGET YOU and will pay you before anyone else because they appreciate you and what you did for them in a time of need when no one else would.
4-In my 30 years....if you have an apartment community with 99% occupany levels then it COST money for every bad tenant, HOWEVER, if you have 85% occupancy or many vacancies...if a tenant runs behind, it makes more sense to work with them and let some rent ride until they work out their problem other than evict them and just add 1 more vacant unit to the list you already have. Those people appreciate what you've done as well and become long-term loyal tenants for the most part.
5-In my state, it only takes 10 days for eviction for non payment of rent. So it's not like I was going to have a deadbeat getting 6 months free rent out of me
6-Lastly...TURNOVER cost money. When analyzing the cost to turn a unit compared to going the extra mile to save the tenant...turnover was reduced and my economic occupancy vs physical occupancy spread was less than 5%.
Applying these techniques, I managed one complex 280 unit complex for 26 consecutive years and maintained well above the average occupancy of the city average and where average tenure was 18 months in our city, my average tenure in this property was 8 years!
I say, think outside the box. Analyze each situation. Have compassion for people and help when you can and the returns will come. Who knows...maybe you'll be a person needing assistance unexpectedly in the future.
We have to think creatively to get the job done. Thanks for the comments.
I totally agree...I try not to let the credit report outweigh the character of the prospective tenant. In the 3 years I have managed properties, I have never had to evict someone.