Banks have charged different interest rates and fees based on credit for years. More and more utilities are starting to charge customer service charges based on credit and of course, your insurance rates have long been influenced by how you met your financial obligations.
But, what about rents?
Some landlords are starting to adjust the amounts they collect from their tenants based on the credit strength of the tenants. Many claim this is discrimination and there are probably some localities either preventing it or limiting it, or they will. But, it isn’t discrimination under any of the protected classes of the Fair Housing Laws.
If it isn’t prohibited in your area, you owe it to yourself to consider adjusting what you charge your tenants based on their credit history the next time their lease comes up for renewal and for all new tenants.
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- As the Credit Crunch Spreads to More Alt-A Lenders, This Will Become More Common
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Tags: Increasing Profits, Landlord, Property Management, Rents
January 16th, 2009 at 2:43 pm
Just another way for you rich #@$%^&%s to take advantage of those less fortunate.
January 16th, 2009 at 3:34 pm
Ron,
I have a real problem with the “less fortunate” label. I personally believe people end up where they end up due to the sum total of the decisions they have made. You may disagree, that’s fine.
However, people who have been inclined to not pay their bills in the past, are likely to not pay them in the future. In addition to that, people who have not managed their finances well are at increased risk of not being able to meet their obligations in the future.
On one hand you might think, well, so what? They just don’t pay the rent that month. Big deal. Get over it.
Yet, when one tenant does not pay the rent, the landlord still has to make the mortgage payment and pay all of the other bills related to the property. If they don’t, the tenant will find themselves on the street because the landlord didn’t meet their obligations.
See, therefore, if a landlord rents to someone with marginal credit, they are taking on more risk and has been the case with the financial world since the dawn of time, they must increase the prices, rents in this case, they charge to make up for the increased likelihood of default.
It is not a matter of taking advantage of anyone. It is a matter of those creating increased risk of loss paying for that increased risk.
January 17th, 2009 at 12:21 pm
Someone makes a mistake and you want to continually rub thier nose in it.
January 19th, 2009 at 10:59 am
Yeah Ron, I agree! I robbed a convenience store cuz I needed money to pay for my baby mama. You make one mistake and they want to continue to rub your nose in it. Its not my fault that people expect for me to take responsibilities for my own actions.
February 2nd, 2009 at 12:35 pm
Absolutely Ron. If you make enough mistakes that they show up in a statistical representation then you aren’t having your nose rubbed in it you’re facing the consquences of your normal decisions.
I face the consquences of my decisions – everyone should face theirs as well; good or bad. Don’t make people who’ve made good decisions pay for the fact someone else is incapable of making good decisions.
If you can’t pay the credit card bill then don’t open a line of credit. Can’t afford the payments on the TV? Don’t buy it. Miss a payment on your cable bill? Cancel the cable. Can’t pay all the cell bill? Get a cheaper cell plan.
February 2nd, 2009 at 1:02 pm
As a landlord, I have to agree with Tim. I have two very nice homes in the highly sought after downtown area. Both of my tenants have poor credit histories. I did not charge more rent but now wish I had. Every month I have to wonder if I will get paid before my mortgages are due. Next time I rent to people with poor credit I will be forced to charge a premium…
August 16th, 2009 at 12:13 am
Your article is rather vague for particulars. Who are these ’supposed’ landlords that you say are using this technique? .
August 16th, 2009 at 4:28 am
My partners and I use it in our properties. I have not conducted a census at the Field Guide to see how many of them do it but I know several do because they have talked about it. You can read the article written by the SME at the Field Guide here… http://fieldguideforinvestors......t-strength
August 16th, 2009 at 5:21 pm
Thanks for your great follow-ups. It’s really appreciated.
August 30th, 2009 at 5:42 pm
I don’t disagree if there is enough demand to warrant higher prices. But the amount you charge a tenant may be less important than which poor credit tenants you choose. A missed payment and eviction expenses will KILL a whole year of positive cash flow for most properties. A high percentage of our tenants have credit problems. However, we look “deeper” into credit histories than just the FICO score. If the reason for a low score is chronic late payments over a long period of time, we will not rent to them. If it is an isolated incident like a medical problem, divorce or (most recently) foreclosure we will rent to them. In my experience, many “foreclosure refugees” make good tenants because they were former homeowners. Moral of the comment is to carefully read credit reports, don’t just look at the score of your prospective tenants.
September 2nd, 2009 at 6:34 am
And go beyond credit reports. With all the “credit repair scams” out there sometimes there can be a great deal of things temporarily removed from a credit report. Talk to former landlords. Talk to current and former employers. (You do ask for former employers on your application, don’t you?) Run a criminal check.
And do this for every adult who will be living in your property, whether they are on the lease or not!