How Do You Qualify Your Tenant/buyers?
I am curious how everyone else qualifies their tenant/buyers or land contract buyers when selling a property?
The two extremes are:
1. Simply to give it to the first person who brings the down payment
vs
2. A full qualification including background check, credit check, verification of rent, employment, income, etc....
I think the most important aspect is there ability to pay the monthly. I usally use a wrap mortgage or contract for deed in this situation.
We do the full check. Simply having the deposit means nothing. I have had tenants that could never seem to pay, but when we got them evicted they always seem to be able to come up with deposits and first and last for a new place to stay.
I prefer to know a bit more about them before I'll sell to them. I especially want to know if they pay their rent/house payments.
Jeff
I think the amount of concern would lie in how much deposit/down payment your receiving. But since we are in the sub-2 forum, I can tell you this. After attending Mr. Locke's seminar in Orlando he qualifies tenant/buyers like this....When they hand you 10 or 20k, you shake their hand and say "You're qualified." If they default, you use THEIR money to get them out and start over. Should be able to cover a month or two of missed payments (if you tolerated it that long) with 20k. Makes perfect sense to me.
Do you think before you accept 20k from someone that you ought to at least consider if they would ever be qualified to buy the house. I had a lady say that she had 40k as a down. She was an older lady and had been saving for 20 years. I thought about what if she could not qualify for a loan on the house. It was a fairly nice house so the payments were going to be about her monthly income. Guess I could have financed it, but one day the crap was going to hit the fan and I would have to kick out the old lady and her 40k would be gone.
It made me uncomfortable and I did not know what to do.
Brenda
Larry,
You are correct since I have never had to do a Judicial Foreclosure, I just make them an offer they can't refuse with their money. Only a little of it by the way, the rest stays with me.
If that doesn't work I use what I call the "C" Note they sign and I don't mean a hundred dollar bill.
John $Cash$ Locke
"Qaulifying" tenant/buyers can be tricky...here's three things to consider;
First, use the same qualification procedures/policies for all applicants to avoid Fair Housing violations. It's one thing to be sued by a tenant and another to sued by the government. If you choose to pass on verification of past history with a % down as the option payment, that's fine...just treat all applicants the same.
Secondly, you can go TOO far with qualifiying. I made the mistake of having an applicant "qualified" for a mortgage prior to completing the paperwork. The tenant "walked" when they found out they qualified for a loan immediately and had the entire sales market to choose from. I should have remained "ignorant" instead of being just plain stupid...duh.
Lastly, the one "qaulification" procedure I don't forgo on anyone is a criminal background check and SS# verification. Here's the website to use for SS verification....
https://www4.sss.gov/regver/verification1.asp
Drug dealers/thieves have lots of cash to
put down and may be quite capable to making timely rent payments but....
:-x
[addsig]
Prolbem is, you are trying to predict the future by past perfomance. And as you ALWAYS here ont he disclamers for mutual funds, PAST PERFOMANCE IS NO INDICATOR OR FUTURE PERFORMANCE.
I advertize NO CREDIT CHECK RENT 2 OWN HOUSE 4 SALE. I do check criminal and civil disputes and I take the first person that brings me > $8000.00 down payment.
I make it very clear at lease signing that NO PAY = NO STAY means NO PAY = NO STAY.
Knock on wood, I haven't had a problem yet. I am at 8 transactions now.
CR
Quote:
[snip]
Lastly, the one "qaulification" procedure I don't forgo on anyone is a criminal background check and SS# verification. Here's the website to use for SS verification....
https://www4.sss.gov/regver/verification1.asp
[snip]
:-x
FYI:
That web site only works for men: it verifies SSN against Selective Service numbers (I put my wife's SSN in to check and got a "Sorry" reply).
Andy
I would say that I go to the 2nd extreme. I do a background check, verify job and income and call former landlords. I also have a minimum income requirement as I rent out higher end properties. (single family homes). I'm not doing anyone a favor by letting them rent from me at $800.00 per month when they only make $1500. They still have to pay the utilities, other bills and eat. The rent plus utilities can't be more than 40% of their gross income from all sources. I may lose a lot of prospects that way but the ones I get stay put. I'm not kicking them out 6 months later because they can't make the rent payments. I have had people try to hand me a security deposit and say "here, I'm ready to move in now!. In most cases, (in my own experience), that has been a warning sign. I don't accept it. They have to fill out an application and wait for me to do my checks. Often, the ones who are trying to "entice" me with the security deposit have had the worst rental history records. The one guy had a trial coming up for assalt against his past landlord and was trying to get another apartment before it went to trial. What he didn't know was that the charges pending were already on the website. There was also a restraining order against him. I denied him. He said "what? Just for that? Thats nothing. He went on to explain that the landlord was only his mother. Besides the pending charge, he had 4 pages of assault or disorderly against him including assault on a police officer. Anyway, I want to protect my properties and myself so I go to the extreme. I get ton's of calls every time I put out a sign on a house so I'm not worried. They always get rented by the time they are ready.
[ Edited by Sandbahr on Date 06/03/2004 ]
Here is a slightly different view...
I would do a full check like I do for a rental. I want to know who I am dealing with. It is not about will they qualify. It is more about knowing who you will be leaving the asset with in case you need to get them out later.
If they are in some illegal business and you do not even ask where the cash comes from the potential legal or clean up issues could exceed the down payment. Most deals will never run into such stuff. Money laundering and drug dealing can cause the house to be seized. If you then try to explain to the judge that you did not know and he asks did you even check where the cash came from, what will you say?
Explain to the people that you are interested in knowing the person you are selling to but that you are not expecting a perfect track records, etc.
I have only done deals with rentals so I know that the advice is not perfectly aligned with what some do for a Sub2 deal.
Yes, if it is a Sub2 deal you can just walk and leave the old owner holding the mortgage and the government holding the property. I am trying to do slightly better.
John
[addsig]
active_re_investor,
Owing a Bail Bond Company there is not alot you are going to tell me about the criminal element of our society.
With the check system you have done of course you never had to think about covering the bail for $500K and if they skip you will have to come out of your pocket for the money or find them and return them to jail. I have.
I have dealt with just about any type of person you can think of who needs bailed out.
Even the ones who have their criminal records sealed for about $200 bucks, which does not show up on a criminal background check. Or the ones that can show can show you where their money came from that you can verify it and it looks as pure and clean as the driven snow.
I deal in the real world, not some hypothetical situation that may arise given certain circumstances. How long do you think a drug dealer would last in a neighboorhood with families present, not to difficult to figure out they don't live there to start out with.
Well if they are any good at what they do, they live in houses that are to expensive for me to look at doing a subject to deal on or so far out in the boondocks that I would never purchase there either.
John $Cash$ Locke