CUTTING THE RISK Effective screening can reduce losses from skips and bad-debt evictions. “Statistics we have seen suggest that each skip costs $3,500 to $4,000 and that up to four out of every 100 apartment units are affected annually,” says Gregory McGrath, president of Domin-8 Enterprise Solutions, a Mason, Ohio-based developer of integrated software for the property management industry. “The cost [of eviction] varies by jurisdiction. The legal costs can add $275 to $500 to the overall cost of a skip, and in landlord-unfriendly areas, it may take up to 90 days to have the defaulted tenant removed.”
Atlanta-based Lane Management (a division of Lane Co.), which manages about 30,000 apartments across the country, uses a screening system to help leasing agents make solid decisions on residents.
“Having no financial history does not automatically disqualify them from having an apartment,” says Jim Collins, regional vice president. “More often than not, we will pass them ‘with conditions’, which means that we’ll look at other areas that have less bearing on the score. These may include time on the job, verifiable job income and how much rent they’ve typically been paying in relation to their income. And we make modifications if we see something extraordinary we need to address.”
That’s keeping losses in check. “On more exclusive portfolios you’d see one half to 1 percent,” he notes. “But we manage everything from public housing to Class A apartments, so we run anywhere from 1 [percent] to 3 percent in uncollected rent.”
THE BOTTOM LINE Whether using a computer-based screening process or not, effectively evaluating prospective residents requires time and consistency. “Document what additional steps you will take when traditional credit is not available,” says Richer, who is a former property manager. “Following those steps each and every time will ensure that you are Fair Housing–compliant and also provide insight into nontraditional types of payment information that would otherwise go undiscovered. Applicants with no previous rental history are not always risky renters.”
Margot Carmichael Lester is a freelance writer in Carrboro, N.C.
Resident Files Giving Credit A credit report may be the most accurate and unbiased evaluation of a prospect’s financial responsibility. But if it’s thin, or completely unavailable, you can ask the applicant to answer some basic questions that may tip you off to potential risks. Former property manager Linda Richer suggests asking the following:
- What bills do you currently pay electronically, and are you prepared to pay your monthly rent electronically? “Individuals that are set up to pay electronically have put an emphasis on being timely with their current financial responsibilities,” Richer notes.
- Do you manage a checking account, and what is your current balance? “If they know their balance, or can pull out their register and provide the balance, they are managing the account responsibly,” she explains.
Rank in order of importance the following financial responsibilities as they relate to your personal life today (1 = Most Important, 8 = Least Important)— Car payment
— Insurance payment
— Room/housing payment
— College tuition/expenses
— Debt owed on past due loans
— Medical expenses
— Utility bills
— Cell phone
“The ranking should provide you with insight into what they are currently responsible for and if they have previous commitments,” Richer says. “You would also expect to see the housing payment ranked at the top of the list.”