Being a landlord isn’t always an easy task. There is a lot on your plate from managing the property, answering questions, performing maintenance, and collecting rent on time. In addition to that, even getting someone to rent your home or apartment can be difficult. Whether you are renting out apartments in Greenville Avenue, Texas or a two-story rental property in the Orlando real estate market, it isn’t easy.
There is likely a lot of competition in your area and if not, you are likely going to be stuck sifting through a long list of applicants. While it would be lovely if everyone was a model tenant with perfect credit, that is wishful thinking. Many Americans suffer from bad credit, due to either bad financial habits or unfortunate and unforeseen circumstances.
As a landlord, renting to someone with bad credit can be risky at times. They are often more likely to struggle with making payments on time and in full. While this isn’t always the case, they don’t instill the same sort of confidence that a tenant with great credit does.
However, don’t let the bad credit of an individual keep you from renting your unit to a great tenant. Plenty of people with bad credit can make great tenants if you know how to rent to them. With that in mind, this article is going to look at a few tips for landlords when it comes to renting to someone with bad credit.
Find Out More About the Reason for the Bad Credit
One of the first things you should do when confronted with a potential tenant that has bad credit is to learn why their credit is bad. If you simply assume it’s because they missed a ton of payments or were careless with credit cards, you may be missing out on an awesome tenant. Oftentimes, bad credit can be attributed to things like expensive emergencies, identity theft, credit report errors, and more.
Some tenants will be very upfront about their credit issues and mention them immediately, while others will wait for you to uncover the information yourself via a credit check. Communication is incredibly important between a tenant and a landlord, so be sure to start right away.
Find Out How They Are as a Tenant
When looking to fill a vacancy in your rental unit, it’s always a good idea to get to know the renting behavior of a potential tenant. In addition to knowing how they behaved, and how they treated a previous unit, you should also find out how good they were at making payments on time.
This can be done by simply asking the individual for rent receipts to show that they made (or didn’t make) all of their payments on time. Contacting a previous or current landlord is also something you should consider. Usually, this will help you get the real story about how a potential tenant rented. You can learn a lot from a landlord.
Make Sure They Have the Funds
Of course, if you are a landlord renting out a property, you need to make sure you get paid. Someone who has a spotty credit history likely poses a bigger risk of not paying than someone with a spotless report. As a result, it is a good idea to make sure they have the necessary funds to cover the rent ahead of time. Seeing their bank statements or asking them about other bills they have should give you an idea of how likely they will be to miss their payments.
In addition to making sure that they have the money in their accounts, it’s also a good idea to see how much money they have coming in as well. Asking about their income or seeing a copy of their pay stubs is a good way to figure this information out. The higher the income, the better the chance that they should have no trouble paying rent in full.
Normally, rent should be about 30% of a person’s income, so that number can be used as a rough guideline. Of course, the other spending a person does is also an important part of the equation. If you are really worried about them not being able to pay on time, it could be worthwhile to have them pay rent via direct debit. This will ensure they never forget to pay you and that the payment will be made in full.
Ask for a Larger Security Deposit
Another great way to reduce your risk when renting to someone with bad credit is to ask for a larger security deposit. A normal security deposit is around 1 month’s rent or so, so consider asking them to pay more. This will protect you in case they are late with (or miss) payments. Of course, ensure you know the legal limit for a security deposit in your area, as you don’t want to break the law.
Also, there are other ways to financially protect yourself and lower the risk. For example, you could ask for multiple months of rent upfront or even get them to sign a shorter lease. This will give you more flexibility to get out of the arrangement if there are troubles being dealt with.
Some renters with bad credit may also be willing to pay a little more for the apartment, to help ease your worries. So if you would normally rent the apartment for $1100 a month, upping the rent to $1200 or so could be a wise decision.
Ask for a Co-Signer
This is among the most popular things to do when renting to a bad-credit individual, and for good reason. Getting the potential tenant to get a co-signer with good credit will ensure you are protected in the case of a non-payment. A co-signer will be responsible for paying the rent of your tenant if they miss it. This will ensure you are always paid what you are owed.
Just like you checked the finances and credit of your potential tenant, you should also do the same for their co-signer. The last thing you want to do is rent to someone whose co-signer is also going to have trouble paying rent. A co-signer should have good credit and should be able to show and prove that they can make payments if your tenant misses.
In conclusion, we hope that this article has been able to help you learn how to successfully rent your property to someone with bad credit. Whether you rent to those with bad credit or not is completely up to you.
This article has been contributed by Kale Havervold.