The weirdest thing about prospective tenant-buyers is that you can’t tell who is going to exercise by looking at their application. Some people are borderline potentials for me but then end up paying perfectly and exercising. Others seem like great potentials, they pay on time then don’t exercise at the last minute. You just never know.
I had perfect tenants in an 18-month lease option and everything was going so smoothly I was sure that they were going to exercise the option. Then came month 17 and “We got a problem.”
The wife called in tears saying that she and her husband were getting a divorce and that she couldn’t pay the rent. She was very embarrassed and wanted a way to work things out in any way possible. Thinking she wouldn’t be able to stay, I asked if it would be possible to start showing the house right away, and she said, “No problem. By the way, I do have some jewelry.”
My ears picked up. “What kind?”
The wife said, “Diamonds and emeralds.”
I said, “What kind?”
She replied, “Well, I have my wedding ring and an emerald ring that my husband gave me for an anniversary present.”
I asked how soon I could come over, and she said, “Come on over now.” I immediately went over to the house and she showed me the two beautiful rings and then gave them to me. Now that just tugs at your heart a bit so I said, “Tell you what, I’ll keep these for you. I’m a free pawn shop. I’ll keep them a couple of years even, whatever. If you ever want them back, just pay that rent, no late fees, nothing. Just take them. I don’t want your rings.”
The wife responded, “Oh no, I’m not coming back for those.”
I said, “Well you never know. You might work it out. I want you to work it out.”
She said, “No no, you don’t understand. I’ve been divorced twice now. From him.”
She never came back for the rings and I still have them. Maybe one day I’ll have them reset for my daughter. You just never know what you’re going to get in this business.
Other considerations:
Forget everything about a tenant’s personal life. Judge only based on what is on paper. If we were all blind and deaf that might be the best way to evaluate a potential tenant properly. Just look at the facts. Personally, I don’t look too much at the credit score number but at what the accompany credit data says. If you do a background check on one person you have to do it on all applicants in order to be fair. Regarding Fair Housing issues, you need to have in writing what your qualification requirements/standards are for credit scores, income, etc. for prospective tenants. You can always have it in your contract, however, that if you find out any of there information is untrue that it is grounds for eviction.
Two of my best tenants ever – I was 21 and not even into options yet. I was just a landlord. I bought a house in a lower end area, and I had an open house. So these two huge guys with tattoos everywhere roar up on Harleys and park them on the front lawn. I ended up renting to them. They were the best tenants, perfectly clean, always paid their rent on time, and when they moved out, they left it spotless. If I had judged on the way they looked, I probably would have rejected them because I found them a little scary.
Excerpt from Investing in Real Estate with Lease Options and "Subject-to" Deals.
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I think it is important to have good understanding of the process as it will help you to avoid some of the most common hazards of home buying and better to have an idea of what to expect and how to set out to buy a home feeling prepared and ready to go.
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