How to Handle Less Qualified Applicants

Written on March 11, 2014 by , updated on September 12, 2017

Less Qualified Applicants“I’m sorry, you don’t qualify.”

Occasionally, none of my rental applicants will meet the financial or credit requirements needed to qualify.

When this happens, I usually have two options:

  1. keep looking, or
  2. work with the applicants I have

For me, time is money, so I usually try to work with the pool of renters that have applied.

I define “less qualified applicants” as those who have always paid their rent on time, but might have less desirable attributes such as a lower credit score, high level of debt, three dogs, or recently started a new job.

They are still viable applicants even if they are less qualified than someone with no debt and perfect credit.

I look for three traits when considering less qualified applicants:

  • Responsive: They show up on time and call prior to confirm. They respond to my emails. They answer my calls.
  • Available: They are available to move in when I need them to.
  • Teachable: They are excited about the unit, and are willing to follow my lease rules – even if it’s “not what they are used to.”

A bird in the hand is worth two in the bush.
– John Ray, 1670

Transferring the Risk

You see, it’s all about risk mitigation. When an applicant is not qualified, I refuse to personally take on the risk myself. However, if I can transfer the risk back to the applicant or a third party, then suddenly I have less to lose if something goes wrong.

There are some specific and common steps that you can take to transfer the increased risk back to the tenant.

With that said, all of the following suggestions are considered “adverse actions,” by the FTC in which the landlord is required to send an “adverse action notice” to the applicants explaining/validating the denial OR the request for additional compensation.

1. Require a Larger Security Deposit

TIP: Collect a larger security deposit.

TIP: Collect a larger security deposit.

Check your state law limits to determine how much of a security deposit you are allowed to collect.

By collecting a deposit equal to 2-3 months worth of rent, rather than just one month, you are securing your ability to pay a few extra months of mortgage payments if your tenant abandons the lease.

In my opinion, collecting a larger deposit is the easiest way to mitigate the risk of a low-quality applicant.

2. Require Online Rent Payments

TIP: Use Electronic Rent Payments

TIP: Use Electronic Rent Payments

“The check is in the mail…” Yeah, right!

By requiring your tenant to use tools like Cozy, their rent is withdrawn automatically and then deposited into your bank account.

If anything goes wrong, such as a lack of funds, you’ll know immediately and can handle the issue quickly.

3. Require a Co-Signer

TIP: Require a co-signer.

TIP: Require a co-signer.

If an applicant doesn’t meet the income or credit requirements, which is common among younger tenants, you can simply require that they find a co-signer to take joint responsibility.

A co-signer is someone (often a parent or sibling) who also signs the lease and is legally obligated to pay rent if the borrower does not make payments.

Just be sure that the total income of all applicants and co-signers meets your income requirements of 2-3x the monthly rent.

4. Require a Lump Sum Payment

TIP: For short leases, collect all the money up-front.

TIP: For short leases, collect all the money upfront.

Recently, I accepted a tenant who only made $1,000/month, but wanted to rent a $1,625 /month apartment. He was my first applicant and I wanted to get it rented quickly.

I told him that if he paid all the rent upfront, plus a 1-month deposit, then he could have the place.

It was only a 4-month lease, and his parents were fronting the money. Sure enough, I received a check for $8,125 and he moved in a few weeks later.

When all the rent is paid upfront, the applicant instantly becomes financially qualified. It’s an easy solution to less qualified applicants on short-term leases. Just make sure your state doesn’t limit the amount of “prepaid rent” that you can collect.

5. Deny the Applicant

Bad tenants are similar to drug addictions. Once they get inside, it’s hard to get rid of them.

TIP: It's okay to deny someone for legitimate reasons.

TIP: It’s OK to deny someone for legitimate reasons.

It’s OK to say no. There will always be another applicant.

Whenever rejecting an applicant, always give a valid business reason based on their ability to pay rent or be successful at your property.

If they don’t meet your income, credit, or reference requirements, just tell them so. Honesty is the best policy and you don’t have to allow co-signers if you don’t want to.

Remember, if you are rejecting an applicant based on their credit report, you must provide them with a copy so they have the option to dispute it with the credit bureaus.

Likewise, if you don’t allow pets, and they have a chinchilla named “Fuzzy Britches” (true story), you can legally turn them away – unless the pet is needed for a disability.

The key here is to use fair and consistent evaluation criteria with every applicant and know what is considered illegal discrimination.

Conclusion

If you’re in a time-crunch, try to find a way where a less-qualified applicant can offset the risk by providing additional deposit funds or some other compensation.

Some of my best tenants came from less desirable applications.

If an applicant is Responsive, Available, and Teachable, a little nurturing by the landlord will usually produce excellent long-term tenants.

These tips for handling less-qualified applicants were originally published in a more in-depth guide called “The Landlord’s Guide to Tenant Screening.”

photo credit: 401(K) 2013, Hammer51012, Enokson via cc
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12 CommentsLeave a Comment

  • Walter

    Great article Lucas. Thank you for taking the time to create these insightful posts! BTW, don’t forget North Carolina tenant laws! :-)

    • Lucas Hall

      Hi Walter,
      Thanks for the feedback! Currently I have NC on my schedule for the end of March – which is just around the corner. Sign up for my newsletter to get notified when it gets published.

      http://www.landlordology.com/newsletter

    • Walter

      Another rent payment tool worth mentioning and I use it for my tenants is called ClearNow. It’s a one-time setup, easy to use, push reminders for tenants and landlord, and they are partnered with Experian so tenants can opt in to report their rent payments which normally never get reported. So F.A.T. tenants who want to build their credit history, now have a reliable solution; and F.A.T. tenants will thank you for it! Also, Williampaid.com is another rent payment tool that offers tenants to opt-in to report their rent.

      • Lucas Hall

        I’ve used ClearNow before and it’s really just a debit processing tool which reports to Experian. I haven’t used WilliamPaid but seems like just a fancier version of ClearNow. Neither of which help me keep track of everything else that a landlord has to deal with or handle the application and screening process.

        It is a neat feature to help tenants build credit and a deterrent for bad tenants. But in my experience, an applicant is going base 99% of his/her decision to rent a property on it’s location, price, and condition.

        Janet Portman does a great job of evaluating the pros and cons of Experian’s RentBureau: http://www.nolo.com/legal-encyclopedia/rent-payment-history-credit-report-35727.html

  • Pete Mechales

    Nice site- informative. Question if I may.

    In Illinois is a Landlord required to provide a locking common entry door to a building with many apartments ? We’ve had a broken lock on one entry door for a year and it’s becoming an issue. Repeated requests by me and even an offer to help pay for the cost have been ignored. I’m baffled why a property owner would be comfortable with a situation where anybody can walk in and roam the halls ( and they do) in their property.
    THANKS

    thanks

    • Lucas Hall

      Hi Pete

      I don’t know if there is a law for that. I do know that a landlord has to give the tenant the ability to secure his or her unit, but perhaps not the front of the building.

      Personally, I think it’s just smart to have a working lock on the front door to keep vandalism and homeless from crashing the halls.

      Perhaps you could send a demand letter, or contact the local housing authority for more info?

  • Jeff

    if I can add one more item to your list, is to insure their income source is garnishable. Most landlords completely ignore this key application element that can easily get you paid if a tenant fails in their lease and is evicted for judgement. If they aren’t garnishable, you can’t.

    We recently wrote a full article on garnishing at the Joy of Rental Property Management Blog, which anyone who is interested can read at http://landlord-411.maanspace.com.

    Keep grinding out there, landlords!

    THE MAANLORD

  • Jess

    We have a batch of prospective student tenants who are responsible people we want to rent to. They are young and don’t meet the total income requirements, so we have asked them to get cosigners. Three out of four of them have found cosigners, but one is having a hard time convincing his parents to cosign, for reasons that I gather have more to do with the parents than the tenant. Walking away at this point isn’t good for any of us. What would you recommend we do? It wouldn’t seem fair to burden the other three tenants/cosigners with the risk. Ask for that tenant to put up a larger security deposit instead? What do you think about a co-signing service? Just move forward since the other cosigners get us above the income threshold?

  • Gayle

    If a property has income requirements and someone on disability income does not meet those requirements but wants to use a cosigner, is the landlord required by Fair Housing to take the applicant with a cosigner?

  • ED

    I have a renter with 2 teenage boys and a 7 year old daughter who have been in our 3 bdr/2ba apartment for 5 years. He recently moved a woman (girlfriend) with a toddler in for a few months before I got wind of the situation. I asked her to fill out a rental application and credit report app which came back with an eviction, debts gone to collection etc.
    What are my options on how to handle this situation?

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