Should I rent to a tenant who foreclosed a home or has bad credit?

In the past 2 years my rental inventory has tripled with owners who are not willing to take a hit on a sale.  This has opened up opportunities for individuals who have suffered a short sale or foreclosure to come into the rental market.  These are usually good tenants-- especially in the upper price ranges.  I am glad to take a renter that was struggling to pay $4000 a month in a mortgage and move them to a $1200-$2000 rental payment.  This helps them and my owner and me-- a win for everyone.  It is all about being flexible in this market.  However, I still must do my leg work and confirm they are able to meet even the lower monthly rent and they are they type of tenant that will not destroy a home.  It helps if I can view the home they are leaving.  In any situation I still MUST do a thorough background check on all of them. 

Excellent comments!  "Research them thoroughly"-- "check them out" ---- "get the big picture"-- "be careful"--"look at each individual"

Someone will rent to them.  These tenants do better going to the owner who is leasing/renting.  Most property management companies won't consider this.

Hi Tracy, I think you bring up a valid point.  I agree on your comment (#28) that raising rents would be based across the board and not on one particular person who may have had a bad situation.  There are so many renters on the market in our area, rents have been creeping up.  Congrats on the feature.

A renter with bad credit can be a better one than the one with perfect credit who can buy a house and will at the first opportunity.

Tracy:

My husband, who handles our rentals, is very picky.  He will not take people who have had a bankruptcy or bad credit.

I don't really do rentals, but I did one as a favor to a client a few months ago. The guy had horrible credit and over $60k in student loan debt that was in collections. His mom receives $10,000 a month in alimony, so we made her the guarantor. I think people deserve a second chance, but landlords also have a right to hold up the red flag. Getting a guarantor is a way to get around that and allow someone to regain rental history to better themselves.

Tracy, it's best to look at the whole situation. Credit scores don't mean as much if someone lost their house due to a temporary job loss, ya know?

Tracy, some Landlords only want tenants with good credit yet like so many have stated it's important to check out each tenants circumstances as bad credit, foreclosure and/or short sale isn't a description of a bad tenant. Good post with good talking points.

Don't discount anyone, some of these homeowners who were foreclosed on had great credit and paid their mortgages for years before they ran into some bad luck. Since they may not be able to purchase for years you might have a really good tenant for a few years. 

There are certainly enough people in that situation now that this will have to be a new normal.

With so many people having their homes foreclosed on, having owners not rent to those with bad credit really can be frustrating to those who simply fell on hard times. I think that additional deposits can be in order (alothough sometimes those are insane.)

I know here we require tenants who have a score below a 625 (which is basically anyone who has had a short sale or foreclosure in the recent past) to put down 6 months of rent. Honestly, if they had 6 months rent to put down on a home to rent, they probably wouldn't have lost theirs in the first place. 

Tracy Lee - Many landlords will consider sellers who have had a short sale with a good explanation.

Shades of gray are appearing with greater frequency as people start looking for rentals. Renting strictly bu a credit report can be an injustice. A steady job on a person's rental application should carry more weight.

Tracy Lee, we look at potential tenant's situations on a case-by-base basis. Some have strong points (such as income) to counter some of their weaker points, so we don't "automatically" disqualify anyone based on a foreclosure or bad credit. Prior evictions? That's a different story. :)

Leilani