Most landlords and management companies believe with every fiber in their body that credit scores will predict good or bad tenancy. Nothing could be further from the truth. After interviewing thousands of tenants we found that credit scores are actually the poorest indicators of who will pay their rent on time. Because of this misconception, many renters who would otherwise be great tenants are rejected at the door solely on their credit scores.
Everyone forgets, the housing market crash of 2007 were by folks who mainly had A1 credit. Their A1 credit rating allowed them to buy homes with zero dollars down. By all standards, these owners should have paid their mortgages on time. Instead, the opposite occurred. Many when faced with hardships stopped holding up their financial obligations and began making excuses to justify bad payment history.
If A1 credit is not the best predictor of who will pay their rents on time, what then should a landlord use to measure good tenants?
1. Official Receipts. Ask for money order receipts or cancelled checks to confirm rent payment history. For money orders check the purchase date. On checks look at the cash date. Money orders purchased on or before the 1st of the month indicates the tenant takes paying rent on time seriously. If the check is dated after the 5th of the month or cashed much later in the month then this might suggest the tenant is making rent payments late.
2. Violation History. In the 5 boroughs of New York City, all property records are online at the Department of Buildings website. Check the violation section to locate any violations against the landlord or apartment the tenant is vacating. If violations are filed against the apartment presently occupied by the tenants, this is a good indication the tenants filed those complaints against the landlord.
3. Housing Court History. Prior housing court history for non-payment is a strong indication that the tenants will not pay future rents on time. If the present landlord dragged them into court for miss payments then they will also not pay you timely.
4. Request bank statements. 6 months bank statement should document the average monthly balance. You are checking specifically to confirm that the deposits exceeds the expenditures each month and that the client is saving.
5. Job security. Longterm employment.
6. 3x rule or 40x rule. Tenants income to rent an apartment should be 3 x(times) rent to calculate the minimal monthly income or 40 x(times) monthly rent to calculate the minimal yearly income. If biweekly income it is best to calculate required income yearly. For example. If the monthly rent is $1200.00, the minimal yearly rent is $1,200 x 40 = $48,000. At the same monthly rent, the minimal monthly income is $1,200 x 3 = $3,600.