When applying for a rental, we have all been trained to do a credit screening on the tenant. The credit report will show who is a good risk, and who has the best chance of paying the rent on time. Right? Well, in mobile home parks, we’re unconvinced that there is any correlation at all between what is shown on paper and the reality of what will happen with the tenant. Here’s why.
Mobile home park tenants always have money troubles
Most mobile home park residents (or applicants) have terrible credit reports. Why wouldn’t they? If anything happens to them, they have no savings and no insurance. A simple operation can put them in the doghouse to the tune of $50,000. A layoff from work can result in unpaid bills immediately, as they have little in the way of savings. The typical mobile home park resident is like a tight-rope walker with no safety net. Of course, the same is true for folks in apartments ranging all the way up to McMansions.
But there’s no reason they can’t pay the rent
Unlike the folks in McMansions and $1,000 per month apartments (the U.S. average apartment rent is $1,080 per month), the average mobile home park resident only pays maybe $500 per month or less. So even the occasional hospital visit or car break down will not serve to derail their ability to pay rent. Assuming a job paying $10 per hour (total income of $20,000 per year), they can normally cover the rent in roughly once week’s wages. The bar is set so low at a mobile home park, that virtually anyone can clear it.
So they can still pay rent and have lousy credit
We see this all the time in mobile home parks – the tenant with terrible credit who has never been a day late on the rent, for over a decade. There is a disconnect in mobile home parks between debts and current payables. Sure the hospital, credit card, rent-a-center, etc. all go unpaid or are in slow-pay status, but the rent comes in on time every month. This runs contrary to the conventional wisdom on credit reporting, but it’s the truth.
Credit reports don’t show the “fight” in the tenant – and that’s the most important thing
One of the most important factors concerning your tenant – and this is not on the radar screen of a credit report – is their willingness to “fight” to pay the rent and keep their home. If a tenant is willing to “fight” to keep their dwelling, they will do whatever it takes to get the rent paid, regardless of adversity. If they lose their job, they’ll get a part-time job, or sell something, or borrow from family. A tenant with no “fight” – even in a McMansion – will just walk off and leave it. That’s the most important personality trait, and goes unmentioned in a credit report.
The failure of the credit reporting system is all around us, but nobody ever talks about it
If credit reports were so darn valuable, then how do you explain the housing crisis that began in 2007? Those folks had high credit scores, and now they can’t dent the mortgage on their McMansion. The bottom line is that the credit reporting concept has never really been that effective a tool in guaranteeing success on the part of the lender or landlord. But it makes people feel good.
Conclusion
Credit screening is a good thing to do. We do it on every tenant. But we do it to mostly scare off the ones that are such a bad prospect that, when presented with the application, they run out the door. But the reality is that credit screening is a very poor analytical tool of the resident’s real performance in paying rent. The fact that they have a job is infinitely higher in importance. And their innate desire to keep their home is more important still. Be sensible in your credit process, but don’t assume that a high score will equal a good experience with the tenant. Stick with a no pay/no stay collections policy, and let the real world sort out which tenants are keepers – that’s the best way to proceed.
