Posted by JPiper on November 09, 2000 at 06:22:27:
I wouldn’t evaluate a prospective lease/option tenant strictly on the basis on the existing credit report. Frankly, if a person had good enough credit then there would be little incentive to do a lease/option to begin with.
And the other side of this is that 10% down to me would cover a multitude of sins. Let’s face it, if they don’t pay it’s going to be hard to lose if you have $5K upfront.
I think you have to look at the entire application, not just the fact that they have collections. The goal here is to understand what this tenant is DOING with their money. For example, have they paid their rent in the past on a timely basis? You can determine this by checking their rental history with prior landlords (not just the most recent), or by requesting cancelled checks or money order receipts for a period of their recent rental history.
Then again, if the goal is to get this tenant financed then the credit report should be looked at from the standpoint of the likelihood of that in the course of the next year or two. If you don’t understand the underwriting guidelines of lenders then you could have Ed pull a credit report to take a look at the possibility of financing somewhere down the road.
I would NOT adjust my rent to what someone can afford. I would rent according to what the market dictates. In fact, I would like to think that I can get premium rent for a lease/option. The fact that they have a credit situation would drive the amount of option consideration, but would have nothing to do with the payment level.
If you get 10% upfront, make sure you have a strong contract, and that it says “NONREFUNDABLE” in several places. Take a look at the agreements available at Bill Bronchick’s site at legalwiz.com.
Gut instincts are fine…but the ones to pay attention to are the ones that derive from experience. In this case, you have no experience, so in my opinion you need to evaluate this situation based on the facts. Fax your application to Ed, I’m sure he’ll take a look.