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Credit Check and Security Deposit


Credit check is the single MOST important thing you will need to do before letting someone move into your home/rental property.

It will save you time, money, peace of mind and spare you a lot of problems.

But credit check is not the only way to figure out potential problems early on.

Talk to the potential renter, ask questions, get references and phone numbers, observe and try to look for RED Flags.


How do you know which tenants should be trusted and which should not?

You learn over time. Some landlords don't give any slack to any tenant, and management companies usually behave this way.

Some landlords instead trust every tenant.

The most trusting landlords are the ones most abused by the tenants, and get scammed to the point of bankruptcy by bad tenants.

On the other hand landlords who don't trust anyone will throw away good tenants who get behind but who would normally catch up with their rent later.

The most successful property manager/Landlord is the one who learns who to trust, and who not to trust.

Knowing who to trust involves building a track record with the client from the beginning. The purpose is to determine whether the tenant is honest, responsible and trustworthy.

  • Spend time with the tenant early on, talking about his history, goals/plans, relationships, whatever.
  • Learn if he has a history telling the truth, with you and with others.
  • Learn if he keeps promises, with you and with others.


His/her credit report tells you whether he keeps promises. The credit report gives you a history of what this tenant did with promises that he/she made IN WRITING.

If he doesn't keep his written promises, then imagine what he does with promises that he makes without any written record.

Sometimes a tenant has a few problems on his credit report, and has a valid reason for them. This tenant will have other entries on his credit report that are positive, and that show a history of generally trying to keep up with his obligations.

This tenant might prove to be a good risk, based on further investigation.

Some potential tenants have not one positive mark on their record, only write-offs and bad debts.

You can explain to such a tenant that every person who ever trusted them got burned, and the tenant will understand and probably agree with you, rather than getting angry with you for the rejection.



Tip:

Ask potential tenants what will you find if you look at their credit report.

Some tenants will assume that you will not rent to them if you see their bad credit report, so they will just disappear if you tell them that you do a credit check.

If you first ask them what you will find, then they will usually tell you.

Then you can tell the potential tenant that you will still rent to them, in spite of the credit problems. But do the credit check anyway.

Sometimes you find a lot worse than what you were told, but sometimes you find that the potential tenant was honest with you, a good sign.


Let's face it - tenants with perfect credit and good income don't remain tenants for long. They buy their own home instead.


Tenants who want to pay the security deposit over time should be asked to give you post-dated checks to cover the cost of the security deposit.

If they don't trust you with post-dated security checks, then don't trust them with your hundred thousand dollar home.

Tenants who say that they have other landlords who don't require security deposits should rent from those other landlords.

Who needs tenants who pay just one month rent, and then live for free while you take three months to evict them?

Even when times are tough, good tenants are willing to pay security deposits.

Even in good times, there are a lot of bad tenants looking for a landlord to scam.



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