Top 5 Financial Red Flags when reviewing Tenant Applications

As property managers, we need to make sure that our clients have responsible tenants. That is why we have listed our Top 5 Red Flags when reviewing potential tenant applications so that landlords can have immediate signs to turn down an applicant but if you see multiple red flags be warned! We have seen too many landlords ignore these red flags or turn a blind eye due to a tenant sob story, only to ultimately pay for it in the long run!

Red flag #1: Bad credit score

Photo from @yanalya of Freepik

If a tenant has a bad credit score, it usually isn’t because of one late payment but rather because of multiple instances of not paying, late payments, having too many credit lines, or using up too much of their available credit. If they aren’t willing to pay bills that affect their credit, what makes you think they will pay the rent that doesn’t negatively impact their credit?

Red flag #2: Collections on their credit report especially for small amounts

Photo from @wayhomestudio of Freepik

Many tenants say that it was a mistake or they are fighting it, but why not just pay a small amount and remove it from their credit report, if anything has them show proof of they are fighting it. Either way, collections only happen after multiple attempts from companies to collect and work with people to collect the amounts owed.

Red flag #3: Their rent has a high percentage of their income

Photo from @jcomp of Freepik

Typically, we like to see that the applicant makes 3x their portion of the rent, so if it is $1,000/month they would need to make $3,000 a month or $3,600. Anything less means they may be living beyond their means and may not have the income to sufficiently pay for rent.

Red flag #4: No source of income

Photo from @user18526052 of Freepik

This one should be a given, but we have heard stories of that applicants are applying for a job, taking time off for themselves, or have trust funds. All of these could be true, however, you will want to see proof of their ability to pay rent for at least the next 3-6 months. If they have a trust fund, an attorney should be able to provide a letter, if they are taking time off, they should show a significant amount of savings (We like to see a minimum 10 months worth of rent). Or if they are applying for jobs, you will want to consider their education, skill sets as well as the general market, but typically we would ask for a cosigner for anyone that doesn’t have a current job.

Red flag #5: A high amount of revolving debt

Photo from @tirachardz of Freepik

A prospective renter could have great credit because they pay their bills on time but have a high amount of revolving debt. Revolving debt is the amount they need to pay over a set length of time, such as car payments or school loan payments. We have seen situations where tenants make $10,000 a month but have revolving debt of $7500, leaving on $2500 to pay all their other remaining bills.

Conclusion

The Top 5 Financial Red Flags to look out for when reviewing a client’s application aren’t the only aspects to consider when approving applicants but they should be weighted heavily when making your decision. The other non-financial red flags will be reviewed in a separate article.

If you or anyone you know is looking for a property manager to ensure you get qualified applicants please contact us today. Remember, with Green Ocean Property Management you get more than a property manager you get peace of mind.