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By Daniel Berlind
Bad residents top the list of things that property managers lose sleep over, and for a good reason. Evictions are expensive—as much as $7,000 or more. Further, evictions keep units off the market. Here’s the bad news—there are a host of ominous trends that point to a dramatic rise in evictions in 2020. Let’s examine these trends one-by-one.
Let’s start with economics. A study from the National Association of Realtors shows that rents are rising faster than incomes. This obviously puts more pressure on residents. Fair enough, but as long as the applicant’s financials qualify, there’s no problem, right? Yes, but this added pressure is causing more and more applicants to lie about their financials so they can qualify.
Fraudulent rental applications
In fact, according to a UBS study, one in five consumers admit to lying on credit applications. The most common transgression? Inflating their income. This is certainly the case in the rental-housing market, where a study from Forrester Consulting shows that 97 percent of property managers have been victims of resident fraud.
“About 30 to 40 percent of the applications we receive contain financial documentation that has been fraudulently altered,” says Chad Vasquez, property manager at Circa LA, a luxury property in downtown Los Angeles managed by Greystar.
Clearly, income verification is more important than ever.
Which is why our next trend, the “Gig Economy,” is so important. Here’s a great report on what the Gig Economy is all about, but the short version is the rise of workers who work by the “gig” as opposed to working for a salary. Think Uber driver versus Starbucks barista.
“It is difficult to manage fraud,” says Vasquez. “There are a lot of self-employed people making tremendous amounts of money. It’s a situation that invites fraud.”
The reason the Gig Economy is important to property managers is that it makes it so much more difficult to verify income. With gig workers there are no employers to check with and no pay stubs to verify. That’s important because analysts predict self-employed workers will total 42 million in the United States in 2020 (27 percent of the workforce). The rise of the Gig Economy will make it more difficult for property managers to vet applicants.
If that wasn’t enough, we’re also seeing an explosion in online tools that make it simple to create fraudulent financial documentation. Legitimate companies set up to help business owners calculate pay stubs for their employees can be manipulated to produce fraudulent pay stubs. Other sites can be used to crease bank account statements with false balances. Even innocuous software like Adobe Acrobat can be manipulated to alter IRS documents for fraudulent purposes.
So, with all these trends pointing to a rise in fraudulent rental applications, will we see a rise in evictions? We already have. Research shows that annual evictions filings have skyrocketed over the past few decades. In fact, there were twice as many evictions filed in 2016 as in 2000 (nearly 2.4 million in 2016).
So, what can property managers do? You can always check documentation manually, but that’s a lot of effort for your team. Also, altered documents are often impossible to spot by humans. And, as we mentioned above, more than a fourth of your applicants are now self-employed, making manual verification nearly impossible. This leads to verifying statements with the government and the IRS—a time-consuming and expensive proposition.
There are a host of commercial services available that take way less time and are far easier. The problem is none of these will tell you if the applicant’s financial documents have been altered. For example, you can verify the applicant’s ID, but that won’t verify that the documentation they supplied is valid. You can check their credit or eviction history, but that shows their past. There’s no guarantee you won’t be their first eviction.
Most of these measures are helpful and you should consider using them. But in today’s world, you need to add a way to spot fraudulently altered financial documentation. “We catch most of the obvious cases ourselves, but about 20 fraudulent tenants slip through each year,” says Vasquez. “That’s why we invest in a service like Snappt to spot altered financial documents.”
Solutions such as Snappt, which offer a quick, inexpensive screening process that spots altered documentation, can help solve that challenge of fraudulent rental applications.
I’ll leave you with one final statistic. More than 33 percent of the financial packages we review have been altered. Let that soak in for a minute. Accepting applicants without checking the accuracy and fidelity of their financial documentation is a serious risk to your business. Are you ready for that kind of risk?
About the author:
Daniel Berlind is the Chief Executive Officer and Founder of SNAPPT, a cutting-edge technology company that is disrupting the rental property application process. Prior to founding SNAPPT, Daniel served as the President of Berlind Properties and oversaw the management of their properties from 2011 to 2017. Prior to Berlind Properties, Daniel was a professional baseball player for the Chicago Cubs and Minnesota Twins.
