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Real Estate Investing Forums | Real Estate Investing | Rehabbing, Landlording Forum (Moderators: $Cash$, Bluemoon06, kdhastedt, Mdhaas, motivatedceo) | Topic: Please Provide Proof of Financial Stability Before I Fill Out Your Rental App. « previous next »
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Author Topic: Please Provide Proof of Financial Stability Before I Fill Out Your Rental App.  (Read 2771 times)
tgauchsin
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« on: October 05, 2011, 06:54:03 PM »

I belong to another forum which has absolutely nothing to do with Real Estate, Landlords or Tenants.  Somehow the subject came up about renting a SFH.  One poster suggested asking for proof of financial stability from the landlord before renting.  I called them on it and the conversation below took place.

So what does everyone think, would you be willing to hand over the financial information of your business to a potential tenant in order to fill a vacancy?

Quote
POSTER:
If the homeowner fails to pay taxes, or if the property is foreclosed upon, the current tenant can be evicted despite the fact that the current tenant has been faithfully paying their rent. As [another poster]  mentioned, the situation can become quite difficult if the property owner goes through a divorce and the property is contested.

If you wish to rent from a private individual, you might consider asking for proof of their financial stability

=================

MY REPLY
While there are a slew of people who find themselves in a situation where they must rent their house in order to avoid foreclosure (whom you may wish to avoid renting from), you will have to be careful how you glean this information.

Potential Renter:
"Mr. & Mrs. Homeowner, before I rent your house, I need to assess your financial stability. May I see your 1040s for the last 5 years along with Schedules C and E?"

Potential Landlord
(thinking): "This tenant hasn't even rented from us yet and they are already a thorn in our side."
(saying): "We're sorry, we've already found someone to rent our house."

=================

POSTER REPLY TO ME:
If I were a renter, I wouldn't ask that. Income is irrelevant when it comes to financial stability. What matters is how much debt the landlord has. I'd ask for a mortgage statement and list of debts. If someone has low income but no debt, I'm happy with that.

A personal balance sheet would be great if they have one.

=================

ANOTHER POSTER'S REPLY:
You can certainly ask but a landlord has no reason to share personal financial information with a potential tenant. Nor should they.

=================

MY REPLY TO POSTER:
I think you missed my point, although I took it to a bit of an extreme. Most professional landlords I know would see you as a tenant who is going to be a problem and make unreasonable demands throughout your tenancy. Therefore they would refuse to rent to you. In their view, it is better to pass on a tenant who they see is going to be a problem and wait for the next one.

=================

POSTER REPLY TO ME:
As a tenant, I would pass on a landlord would not give me pertinent financial information.

There are TOO MANY stories about tenants being evicted by the courts after paying rent to landlords and the landlord did not pay their mortgage. Or the landlord declares bankruptcy and there goes my security deposit and apartment (when the Bankruptcy court orders the building sold and evicts the tenants). And then what about those who are pretending to be the landlord (say, the super) and "renting" out apartments only to have the landlord actually show up and evict them? And what about scammers who do the same who are not affiliated with the apartment?

No need to assume all landlords are 100% saintly and walk on water.

It does not mean I'm going to be a problem to my landlord, it just means I'm trying to protect myself from potential bad things that could happen. Landlords check out the background of the tenant and rightly so, they want to protect themselves from bad tenants. The same thing goes for tenants - they should check out the landlord to make sure the landlord is financially sound (at least!)

=================

MY REPLY TO POSTER
Good luck to you.  I doubt any landlords would be willing to hand over that information.  I may be wrong though.

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justin0419
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« Reply #1 on: October 05, 2011, 08:46:53 PM »

Hell no, I would not provide financials to a tenant.  What better way for them to get an idea to not pay than to show them you are MUCH better off than they are financially?  When you rent to someone, both sides are taking risks.  The LL is taking risk of renting to a dirtbag tenant who won't pay and tears the place up.  The tenant is taking a risk of renting from a dirbag LL who won't fix anything, uses the rent money for gambling rather than paying the mortgage, etc. 
Yes there's a chance the good paying tenant could be kicked out b/c the property goes into foreclosure.  Sometimes bad things happen to good people and maybe some unforseen circumstance came up where the owner could no longer afford the place.  If someone buys a rental property because they want in on all the fun of REI, but they can't really afford it - they're stupid and asking for trouble. 
When I bought my first property, I told myself that property would be a priority and I would not be late on anything associated with it.  Tenants are depending on me to act responsibly.  I don't think my apartment renters would like it if the water got shut off or they didn't have any hot water because I didn't pay the bills. 
Other people may not see it this way, but that's how I view my responsibility as a LL.  I want to provide a good experience for the renters just like I'd want to be treated.
Once again though, a tenant does not deserve my financials...period.
« Last Edit: October 05, 2011, 11:28:41 PM by justin0419 » Report to moderator   Logged

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Bluemoon06
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« Reply #2 on: October 05, 2011, 11:09:49 PM »

I had this discussion with one of my current tenants before they signed the lease.  I told them that it was an interseting discussion but I didn't offer any proof of my financial stability and they frankly would not know how to evaluate it if I did. 

Did they need me to make $100k/year of $50k/year.  Do they need my FICO score, and if so do they need 650 or 750?

The information I would provide would just be for their vouyerism.
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andydallas
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« Reply #3 on: October 06, 2011, 05:28:03 AM »

I simply say I take care of business, but the rent from a house goes to pay the mortgage for that house,,,I think more tenants are concerned about how well the house will be maintained instead of the house being foreclosed on,,,,

I have meet some LL that I would be concerned about the house being foreclosed
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jfpen
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« Reply #4 on: October 06, 2011, 08:02:30 AM »

A valid reply might be:

I understand your concern.  I'm sure that it is obvious to you that by looking at the condition of this property that I do maintain my properties. I'm able to keep the property in good condition by collecting rents on time. I notice that you've been employed by the XYZ company for 11 years. With the economy in the shape it's in, I have concerns as well. With your application could you attach a copies of the corporate tax returns and the personal tax returns of the XYZ companies officers for the last 2 years? I just want to be sure that you'll continue to be employed. When we get those, we can talk about my financial stability.

JP
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davewindsor
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« Reply #5 on: October 07, 2011, 07:44:05 AM »

I would never show my financials unless there was something to gain like a rent to own scenario.  If they're bold enough to ask, it's probably a red flag that they've had problems with other landlords and they're just gonna be a problem for you. 

I also always ask why they've moved and if they complain about the landlord then 9 times out of 10 I'll decline them because most likely they'll complain about you too and I'll just say sorry I need landlord references to move in here and if you have complaints about your previous landlord I'm sure they'll be complaining about you too.  You don't want a lot of negative people in your building.  I know from years and years of experience they'll burn you out really fast and you'll end up hating the business.  You've got to be really careful with who you let in. 

Anyway, back to the point, if they ask for financials, you tell them you're not a public corporation and change the subject to why did they move from their previous place and what do they think their previous landlord will say about them.  Anything negative and the application is pre-declined because they need good landlord references.
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timtim2008
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« Reply #6 on: October 30, 2011, 12:23:34 AM »

this is another reason. why he asked.

http://www.wsbtv.com/news/news/police-man-renting-foreclosed-home-could-have-hund/nFPgc/


just saw this in the news.. very sad story for the tenate.  (watch the video)

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bdub
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« Reply #7 on: November 01, 2011, 10:02:55 AM »

the most i would show them is proof of ownership (deed) and payment of previous tax bills.  they could keep the copy of the tax bills, but not the deed.
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jmd_forest
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« Reply #8 on: November 01, 2011, 11:49:03 AM »

I've never had this happen, but I'd tell them there was nothing I could show than that might possibly not be forged and the only way they could completely verify my ownership of the property and that it was not in foreclosure would be to do some digging on their own at the county court house since all of that info is public record.  I highly doubt ANY tenant is that ambitious.
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« Reply #9 on: November 01, 2011, 12:08:44 PM »

the best thing is tell the tenant to keep looking.
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Whitaker
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« Reply #10 on: February 23, 2012, 03:30:38 PM »

Two thoughts.

Translation from somebody who has been involved in a LOT of litigation in his time: "How much can I get if I sue the landlord after I pretend to slip and fall?"

Just rent to somebody else.
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Estrogen Hostage
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« Reply #11 on: February 24, 2012, 02:10:23 PM »

I don't think I would do this for a tenant, but I did recently get asked this by a customer when I was trying to close a very large deal.

I told him that we don't give out financials, but offered a letter from the bank stating that we were on time paying our bills, had not bounced a check, and had high enough balances in our accounts that we weren't in trouble. This worked. ALl he wanted was to know that I wasn't going to take his money and file bankruptcy. It was a very valid concern for the amount of money he was sending me.

For a tenant, I'd at most do the same thing. Get a letter from the bank stating that you are current on your mortgage and in good standing with the bank. No more, and maybe not that much. this is a big red flag, but as pointed out above, bad landlords do happen. You can't blame her for asking.
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andydallas
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« Reply #12 on: February 25, 2012, 07:53:04 AM »

talk about something that could be used against you,,,I tell my tenants they have to pay on time because I have a mortgage on each property,,,if they knew I had large reserves (because banks require them), I would lose that leverage.

I want my tenants to think I'm justd above poor,,,I prefer them not know where I live, not because I'm afraid they will come knock on my door, but because I live in an upscale area
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Estrogen Hostage
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« Reply #13 on: February 25, 2012, 10:31:16 AM »

I am also very careful about appearances. I drive an old pickup. It's in good condition but is still 20 years old. My house is only a block away from some of my rentals. It's nice but not a whole lot nicer than the rentals. It's a small town so people will always know where I live, but it's important to keep a low key lifestyle. I think it affects my relationship with employees, tenants, vendors, and so on.
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Real Estate Investing Forums | Real Estate Investing | Rehabbing, Landlording Forum (Moderators: $Cash$, Bluemoon06, kdhastedt, Mdhaas, motivatedceo) | Topic: Please Provide Proof of Financial Stability Before I Fill Out Your Rental App. « previous next »
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