A credit report alone is not sufficient for screening a tenant

rental property trashed by bad tenants
But they had a good credit score.

I last wrote that you should never accept a credit report provided by the applicant due to easy online availability of fake credit reports.

In this post, I would like to explain why even a valid credit report is inadequate by itself when screening a rental applicant.

Credit reports do not contain enough information to properly evaluate an applicant.

The applicant’s income, in addition to eviction and criminal history are very important when considering a potential applicant and none of these are found in a credit report.

Typically the required income to rent ratio is 3 to 1. If the rent is $1000 per month, then the income for all the renters need to be at least $3000 per month.

I am often asked about verifying income. We recommend that the agent or owner ask for 3 consecutive pay stubs. If the applicant is self-employed, then request the 3 most recent bank statements to verify  the income deposits.

This method is far easier and quicker than attempting to get salary or wage information from the employer. Many large employers will direct you to a third party that requires a fee for income verification.

An eviction report is extremely important.  A person who was evicted in the past, is likely to be evicted again. Having to evict a tenant is time consuming and costly.  You also need to take the repairs into account. Most evicted tenants don’t exactly leave the property “broom clean move-out” condition.

Don’t think a criminal report is important? Think again. I was speaking at a real estate investors group about tenant screening best practices.  An elderly landlord told me a very scary story. The tenants in one of his properties stopped paying rent and would not respond to his phone calls. He went to the house to ask about the rent, was beaten severely by one of the occupants and ended up in the hospital for 2 weeks.

It was discovered after the tenant was arrested that he was a convicted felon.

A criminal background check would have identified his criminal history and saved the landlord from the pain and suffering of the beating.

Here are some more stories that will help convince you about the importance of tenant screening. http://buildrealty.net/blog/2014/12/21/6-insane-landlording-stories-that-prove-the-importance-of-tenant-screening/

No tenant screening process will be 100% effective. But a comprehensive background search can significantly reduce the number of problem tenants.

Jay Apple is co-founder of tenantmagic.net  www.tenantmagic.net

Why you shouldn’t use a credit report provided by a rental applicant

Fake credit report web site

Here is a big reason why you should never use a credit report provided by the rental applicant for an application.

It is quite easy to get fake one.  Simply by Google “Fake credit report” and fill out the on-line pdf. Here is a link to one of the sites so you can see for yourself. https://fake-credit-score.pdffiller.com/

Agents and landlords should always use a reputable online tenant screening program to avoid fakes.

You obviously want to know that the information in a completed rental application and screening report is accurate.  It is also critical to know that the person submitting it is who they claim to be.

A quality screening provider will verify the information provided by the applicant and their identification.  When an applicant enters their social security number into the system. The credit bureau will then check to see that the personal data of the applicant matches with what the bureau has on file (date of birth, current address, etc.) The process should then require the applicant to verify their ID. This is accomplished by answering questions that only the applicant would know the answer to such as amount of car payment, previous address or auto loan amount.

Additionally, a credit report is only one of the reports that should be considered by an agent or landlord You really need an eviction report, a criminal history report and a sex offender report to do a thorough review of an applicant.

There is no shortage of scammers out there. And once they are in a property, it is difficult and expensive to get them out.  Then there is often significant damage to the property once you do get them out.

Fortunately there are high-quality tenant screening service providers that you can use.  A good tenant screening service will help identify unqualified applicants before the lease is signed, saving you time and money.

Jay Apple is co-founder of TenantMagic  www.tenantmagic.net Continue reading Why you shouldn’t use a credit report provided by a rental applicant

How far and how fast will home ownership swing back?

I recently had lunch with a senior finance executive who is in his mid 30s,  married and has a young daughter. The conversation turned to home ownership and how it is viewed by people in his age group.

He rents and said that currently he and his wife (also a professional) have little desire to purchase a home. He went on to say that many people he knows that are in his age group feel the same way about home ownership.

This made me think about how fast and far the home ownership pendulum is going to swing back.

Since 2005 home ownership has steadily declined from 69% to 63.7% at the end of 2016.

As can be seen in the US Census Bureau graph below, the decline has been longer and steeper than in any other period going back to 1965.

A closer look will also show you that the drop off continued after the 2007-2009 recession.

Hone ownership rates 1965 - 2016

As we all know trends don’t continue forever. But we do need to look into what has changed that can affect any rebound. For more data check out the entire report at https://www.census.gov/housing/hvs/files/currenthvspress.pdf

During my conversation with my finance exec friend, he mentioned 2 reasons he and his wife did not want to buy a house. The first was he didn’t view it as a good financial decision. Housing prices are still recovering from the 2007 – 2008 housing crash. Secondly, his career could require him to move regularly and he didn’t want deal with buying and selling his property every couple of years.

Industry research on this topic has identified 2 other reasons that millennials are not buying homes like people their age did a generation ago.

College loan debt plays a very large factor. Graduates are saddled with this debt for a long period of time which makes it difficult to save for a down payment. This coupled with a less than robust job market adds to the headwinds in home ownership, especially among people in their 20s and 30s.

If history is any indicator, the trend in home ownership should reverse itself. However the trough is deep and even returning to rates of the 1980s can take some time.

Bottom line, real estate agents should be prepared to deal with home renters for the foreseeable future.

Are your customers satisfied or totally irritated with your customer service? – The need for speed.

Bad customer service

TenantMagic makes the rental application and background screening process quick and easy for agents/landlords, as well as applicants by using technology.  As we all know, things can go wrong with even the best designed programs. It is important that rental applications are processed quickly, as any delay can result in an applicant losing out on a desired property, so at TenantMagic we need to address any issue promptly.

This is where customer service comes in and where businesses can really make a name for themselves, for better or for worse.

I manage the customer service for TenantMagic and look to consumer companies that I interact with for ideas on what to do and what not to do. After all, our expectations in the business world are shaped by what we experience as consumers.

Recently I had issues with two different product/service providers that required me to contact their customer service departments and had two distinct experiences.

The first was Amazon.  The phone accessory I purchased using Amazon stopped working a few days after receiving it.  I was unable to find the contact information for the company, so I called the Amazon customer service number.

I told them what had happened and they immediately took care of it by crediting my account. I then purchased a similar item from another provider. Amazon came through, the product manufacturer did not. I will continue to use Amazon, but will think twice about going back to the company that supplied the product.

The second experience was with my cell phone carrier which I have been with for 17 years! I was able to easily contact them about my issue regarding a phone upgrade, but the promises that were made were not kept, requiring me to call back multiple times. I will spare you the details, but in the past 2 weeks I have spent easily close to 20 hours on the phone with their customer service reps and all my problem is still not resolved – and it is not that complicated.

When things go awry in a business transaction it is vital to handle the issues quickly.

The way I look at it is, that is comes down to time. First, don’t make it next to impossible for your customers to find company’s contact information. The when you do interact with a customer that has a problem, try to resolve it immediately if possible. Your customer’s time (and yours) is too valuable to waste. Delays lead to irritated customers.

At TenantMagic we make every attempt to have a person answer the phone for customer services calls and try to get any issue resolved as quickly as possible. There are times when we cannot address a customer’s problem to their satisfaction. When that happens, we explain the situation, tell them we are sorry but there is nothing more that we can do. We might lose that customer, but have not wasted their time by stringing them along with excuses and promises that cannot be kept. And, we are not wasting our time.

Paper rental applications? Do you know what century we’re in?

It never ceases to amaze me the number of agents, landlords and property managers that still use paper applications.

In my last 2 posts I covered how paper applications can complicate Fair Housing compliance and the create personal data security problems.

Today we will look at how time consuming paper applications are and how they make  your business look antiquated.

Paper applications, whether they are handed out or a downloadable pdf, require the agent/owner/ property manager to enter all that information into the background screening program. (If you are not screening your prospective tenants, then you are just asking for big trouble.)

Typically this can take up to 10 minutes or more per application, which  adds up when you have multiple vacancies.

Paper applications are usually accompanied by paper checks or credit card information application fees that need to be written out and then entered into a payment system, again requiring even more time with data entry.

Still not convinced? Do you still feel that all this paper and redundant data entry is really not that big of a deal?

Then consider the image that you are portraying to your prospective tenants. If you are using paper applications and collecting fees with paper checks you are giving people the impression that your business is not up to date. What are going to think about your property and its maintenance?

Using a reputable online application and screening company makes sense on so many different levels. The amount of time you save and the how you present yourself and business are just two reasons to switch.

Jay Apple is co-founder of TenantMagic www.tenantmagic.net, an online rental application and background screening provider that is free to real estate agents, property managers and landlords.

Personal data security dangers with paper rental applications

In my last post I discussed the fair housing compliance issues associated with paper applications

In this post we will look at applicant personal data security dangers that are prevalent with paper rental applications and how to keep applicant data secure.

According to the FBI, identity theft is the fasted growing white-collar crime in America.

Believe it or not there are still many real estate agents, property managers and landlords that use paper rental application.

There are 2 variations of these

1) An actual paper application that is handed out at the location or available on line and then downloaded to be completed. The completed application is then hand-delivered, emailed or even faxed back to the office.

2) An online fillable pdf.

Both present serious security problems as they are ultimately printed out to be viewed and distributed.

A paper application contains the applicant’s name, date of birth, current address and social security number.  I have also seen credit card information on an application

This is everything an identity thief needs to wreak havoc with an individual’s ID.

Paper applications are not easy to keep secure and away from prying eyes. I have seen them laying out in the open at many offices. These offices typically have a steady stream of people regularly visiting them. There are also cleaning and maintenance people that could access them, especially when the offices are closed and no one else is around.

Fillable, on-line pdfs present an additional security problem when there are multiple applicants. Many times the co-applicants are required to complete the same application as the primary applicant on the same form. The primary applicant will complete his/hers then the co-applicant will continue with the same application. This allows the co-applicant to see all of the primary applicant’s personal information. This is a cause for concern when the applicants don’t know each other all that well.

The solution to resolving these security issues associated with paper applications is to use a secure on-line application program.

Make sure it has the following features-

–  Individual applications (that can then be combined for review) for each applicant.

–  The ability to capture an SSN for screening purposes, but not make it visible to anyone after it is entered.

–  Access by permission only. If more than one person needs to review the application, each needs to have their own log on credentials.

Paper applications are obsolete and provide a tempting target for identity thieves. Many of the personal data security issues associated with paper rental application can be greatly reduced by using a reputable on-line rental application and background screening service provider.

Are you still using paper rental applications? – You really need to stop.

There are a number of very valid reasons why paper rental applications can adversely affect your business.

  • Fair Housing compliance issues
  • Information security concerns
  • Redundant data entry
  • Negative impressions

I will address each reason in separate posts.  In this post I will look at  potential Fair Housing compliance issues with paper applications.

The Fair Housing Act was enacted to protect rental applicants and tenants from discrimination and bias by a landlord or real estate agent.  The law which is very comprehensive and among other things, prohibits property owners and landlords from:

  • Refusing to sell or rent out a house based on the race, religion, color, gender or nationality of the tenant
  • Having different terms and conditions for different applicants based on the race, religion or nationality of the tenant for the rental or sale agreement
  • Promoting or advertising the rental with a section that seeks a specified  preferred gender, race or nationals to apply

Please note that Fair Housing laws can vary by state and even municipality. This post is not intended to provide legal advice. If you have any questions about the fair housing laws in your area, please check with an attorney or the proper authorities.

According to Ron Leshnower, who is an attorney, and Founder and President of Fair Housing Helper,  addressed the question – “Do I Have to Accept Applicants in the Order they Applied?”

His answer is “no,” but adds that “…you might want to because accepting applicants out of order, though not illegal, could give the impression of discrimination and may cause legal problems for you.”

Penalties for violating the Fair Housing Act can be very severe. Violations are typically investigated weeks or even months after they are reported. It is incumbent on the landlord or real estate agent to provide documentation that the violations did not occur.

Paper rental application makes compliant rental documentation next to impossible for the following reasons.

Many landlords and real estate agents that do use paper applications can tell you that they regularly receive applications that are missing information. While they are trying track down the applicants to get the information, they are getting new applications for that property.

Landlords can appear to be discouraging potential tenants from applying to their properties or steering them to another property when they select an application from someone who has provided a completed application after a partially completed application was submitted.

This can be considered a violation of the anti-discriminatory housing laws.

Even when the landlord does follow the rules, rejected applicants can claim, rightly or wrongly, that they were turned down due to race, ethnicity or any other of the protected classes. As indicated, the burden is on the landlord to show the first qualified applicant was accepted, which can be very difficult with a paper application months after the fact.

With properly designed online applications, you get two benefits to help keep you compliant with Fair Housing regulations –

  • The application cannot be submitted unless it is complete.
  • Successfully submitted applications are date and time stamped.

Assuming you are complying with Fair Housing rules and consistent with your application process for each applicant, an online application provides you with documentation should a complaint arise.

 

Ignore at Your Own Peril

In a previous post I wrote about the 4 critical steps you need to take when considering rental applicants. They are –

  1. Pre-screen your tenants by clearly communicating your residency standards
  2. Require complete applications, have each co-applicant complete their own individual application and collect an application fee
  3. Conduct a comprehensive background screening for every applicant and co-applicant 18 years or older that includes credit, criminal and eviction results
  4. Make sure the applicant’s ID is properly verified. Is the applicant who they say they are?

However, going through all the effort to properly screen an applicant is useless if you don’t pay attention to the results.

Here is a story from Tina who didn’t pay attentions to the screening report results.

“This new applicant was a nice guy and has a sweet dog, but I am never going to forgo the Tenant Magic approval again after what happened with my last tenant. I had her complete the application and go through the screening program, the recommendation was to refuse the applicant, and boy do I wish I had listened.  What a worthless nightmare she turned out to be.  Thanks for your help.  We’ll see what he does.”

This a great example of being able to learn a valuable lesson from the (easily avoidable) mistake of someone else.

“Believe none of what you hear and half of what you see”

Why customer service is so important from your tenant screening provider.

Even with the best tenant screening providers, there are times when the applicant can try to game the system and requires additional investigation.

Recently we were asked to take a look at the screening report of an applicant for a high end multi-unit rental property that we processed. We were told that something didn’t feel right about it.

The applicant’s credit report was returned as a Thin File, which meant that the applicant had no credit history. The applicant was 32 years old and having no credit history is unusual, but it’s not unheard of.

The Eviction Report showed 3 evictions over the past 5 years for a person with the same name as the applicant. Housing/Municipal courts do not use dates of birth or social security numbers when reporting evictions, so you do get false positives especially with someone with a common name.

At TenantMagic we compare known addresses reported by the credit bureau with the reported eviction address for the applicant. If there is a match, then we know it was the applicant that was evicted. However, in this case the applicant did not have a credit history, so we didn’t have any known addresses to cross reference.

The applicant made sure not to report his actual address on the application and used one of a relative, where he could have lived at some point.

The credit bureau did indicate that there was not enough historical information to make a firm recommendation on the applicant’s risk level. So now what do you do?

How do you determine if the applicant is qualified, even after completing a background screening?

The real estate agent for the owner called us with her concerns. The TenantMagic customer service team did a review and saw that the applicant did have some minor charges that showed up in the criminal report. We retrieved the court documents and took a deeper dive.

Criminal and traffic courts do report addresses and date of birth. In this case when we looked at the court reports, they discovered that the applicant lived at the address where the eviction was reported. We then confirmed this, as the date of birth matched with what was entered in the application.

Recent prior evictions are a major red flag for any landlord. A person who was evicted in the past is likely to be evicted again. The lengths this applicant went to hide previous addresses is cause for even greater alarm.

TenantMagic reported this to the agent and owner with the actual court reports, allowing the owner to quickly make a decision and move on to the next applicant. No time was wasted by the agent or owner. The decision was made to decline based on solid Fair Housing-compliant information.

Moral of this story. Even comprehensive background screening reports don’t tell the whole story and can require additional analysis. Agents and owners can spend the time themselves to do it and hope they get it right or they can use a full service application and background screening company to provide the information for them to make a qualified decision.

Fair Housing-Compliant Tenant Screening

Fair Housing compliance when screening tenants is so important on many different levels – legal, ethical, and business.

However, it is not difficult to avoid problem tenants before the lease is signed and still be fully compliant with Fair Housing regulations.

It is vital to set and clearly communicate your rental criteria and building standards upfront when screening applicants. If you do get phone inquiries, make sure that you provide each inquirer the exact same information and keep any conversations strictly to the property itself.

Most importantly, the residency requirements must be prominently displayed at the beginning of your application.

Unqualified applicants will typically screen themselves out of the application process if they don’t qualify for your residency requirements and are required to pay an application fee.

Fair Housing compliant standards and criteria can include

  • Rent to income ratio
  • Prior evictions
  • Bill payment history
  • Criminal history

(Please note that state and local fair housing laws can add other protected classes or have regulations that vary from federal laws, so check with your state and municipal housing authorities to make sure you are compliant where your rental properties are located.)

Finally, keep good records of each applicant or inquiry in case you do need to provide documentation if a complaint arisies.

This post is for guidance purposes only and is not intended as legal advice. If you have any questions regarding fair housing laws, please consult an attorney or the proper regulatory agency.