Tenant background check and bankruptcy

by Jeff
(MN)

Would you rent to people with a history of 2 bankruptcies in the last 9 years?

LM says:I would probably need a bit more information to give you a good answer but I'll take a shot. The short answer is, I might. Someone like that is not going to be a home buyer for a long time so they will be a renter for a long time. It really would depend on where they are at right now. Do they have a job? Have they been at that job for a while? Income amount? What debts do they currently have? Questions to these answers should give you an idea if they would make good renters or not.

A good place to start is with these tenant screening tips and doing a tenant background check. To make your life easier use Tenant Verification Services to make sure you got your bases covered.

You can always protect yourself by asking for a higher security deposit or requiring rent to be paid in money order/cashiers check and stuff like that. The point is there is some research on them you have to do in order to make a decision and you can put some controls into place to protect yourself.

Let us know how it goes...

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Re: Tenant background check and bankruptcy
by: Jeff

As far as income. I am interested in what a good rent to income ratio should be. The rental agencies have quoted me 40% of gross. Everything I?ve read about prudent rent to income ratios say no more than 30% of NET income and even as low as 25%. For his income, the rent to income ratio is 41% of gross or 47% of net. So he?d be spending nearly half his take home pay on rent.

He started a new job 6 weeks ago. He works for a company that he says does seasonal work for the summer and he gets laid off in the winter every year and has to find work for the winter. His bankruptcy closed last March. He still has $20,000 in auto loan and $30,000 in deferred student loans that were not discharged. She is a student and showed me no work history. He only listed work history for the last 1 ½ years.

Their credit report showed them with 6 current credit cards all nearly maxed out for a total of $4500. Seems to me they haven?t learned any lessons.

I don?t want to be mean, but I don?t know if I?m doing them any favors renting them a home they can?t afford. In fact I might feel like I?m taking advantage of them and I?d feel real bad if I had to evict them down the road.

I?d be grateful for your opinion,

Thanks.

Jeff

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Re: Tenant background check and bankruptcy
by: LM

LM says: Jeff, there are so many red flags here I don't know where to start.

Typically I have aimed for the rent to be no more than 25% of household income. That is conservative so going a bit higher should be fine.

- 50% of salary going to rent is too high
- New job 6 weeks ago may show he can't hold a job down
- Does seasonal work means his income may fluctuate and judging by his bankruptcies I don't think he budgets well
- No work history
- 6 credit cards!! for someone with 2 bankruptcies!

So with the numbers you are getting from him I would not feel comfortable. That plus the other factors which you have done well in researching would leave me to suggest that you pass on this guy.

From what you have done it looks to me you know what you are doing and you are headed in the right direction. I know it can be unnerving to have an empty rental and have an applicant in hand and have to let him go but I have met experienced landlord after landlord that has told me the same thing: better to have an empty unit than a bad tenant.

I agree with you in that the numbers really don't lie and it looks like they really cannot afford this rent. They might THINK they can but in reality they can't. The only option I could think of is for them to pay 6 months rent up front and with the numbers you are showing me I doubt they will, but you can ask...