Photo:
Getty
The only thing worse for a property’s bottom line than an empty unit is a unit occupied by a tenant who has stopped paying rent. That’s why property managers must work just as hard to vet applicants as they do to attract them.
No Shortage Of Vetting Methods
What do we mean by “vetting” a residential rental applicant? In simple terms, vetting is simply checking as much information as you can to make sure the applicant will pay rent after moving in. So what can a property manager check to ensure this?
First, you can check their ID. There are a variety of companies within reach that provide quick and easy ways to verify that an applicant is who they say they are. You can check their credit history. You can analyze their financial strength by asking the applicant to supply pay stubs and bank statements.
These are the basics, but if you want to be thorough, you can add checks to criminal history and eviction history. You can check government watch lists, such as sex offender or terrorist databases.
It is also helpful to do your own background research. Ask for canceled checks for the past three months at their current address. You can also talk to their employer or past landlords to get a sense of their reliability. There is no such thing as “too much” information on a prospective tenant.
So Why Are Evictions Still Rising?
None of what’s described above is news to property managers. Most are probably doing many, if not all, of the checks I listed. In fact, it’s never been easier to vet an applicant. Virtually every method described above is available through simple, efficient and inexpensive online services.
Yet despite this, evictions are rising, not falling. According to Princeton University’s Evictions Lab, a national evictions database, the total number of tenant evictions have more than doubled over the past two decades. Eviction rates in some studied areas are as high as 16%. What’s wrong?
I see several factors that are driving this eviction crisis. First, rents are increasing much faster than income. Second, the percentage of cost-burdened renters (those paying in excess of 30% of their income on rents) nationwide has reached 47.4% as of the Joint Center for Housing Studies of Harvard University’s latest report. And third, most rental applications come in electronically now. That means leasing agents often don’t have the opportunity to interview the applicant before making a decision.
That explains why there are more pressures causing tenants to default, but not why current vetting methods aren’t catching bad renters in advance.
What’s Wrong With Existing Screening Methods?
Let’s first state the obvious: Existing screening methods do help. Nobody would argue that uncovering falsified identification, criminal records or lousy credit is unimportant. The standard vetting methods are a smart first line of defense against fraud.
But what if the applicant fraudulently alters the financial documentation they submit to you? Maybe they increase their net income on their pay stub, or add a zero to their savings account balance. Basing your financial analysis on falsified numbers may lead to leasing to tenants who eventually cannot meet their obligations, and this leads directly to eviction. The problem with relying only on traditional vetting methods is that falsified documentation is anything but simple to detect.
What can property managers do to address this challenge? One solution is to call the source of financial documents to confirm the numbers. This includes calling employers, banks or whichever institution was the source of the documentation to verify accuracy.
Yes, this can be time-consuming. But consider this: Our internal analysis of financial documents submitted to leasing agents show that roughly 30% have been fraudulently altered.
With evictions costs adding up into the thousands of dollars per unit, it makes sense to apply every method possible to addressing the problem.