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Home · Property Management · Tenant Screening : Foreclosure Numbers Are Driving Up Rents

Waiting in lineThe foreclosure crisis is still raging, according to statistics from Realty Trak, an online foreclosure marketplace.

They reported nearly 235,000 proceedings for March. That’s an increase of 5% from February, and 57% from March, 2007. This trend is creating an influx of renters, most of whom lost their homes, but many who were evicted when the landlord faced foreclosure.

A Landlord’s Market

Vacancy rates are low. According to the National Association of Realtors, the average vacancy rate is 4.7%. Five percent is considered a “landlord’s market”. Parts of New Jersey, San Jose, Miami, Salt Lake City, and San Diego have vacancy rates of 2.9% or below. That drives up rents – a predicted 5.3% increase this year, compared to last year’s 3.1%. Current loan restrictions make it harder to buy a new home, making renting the only option for many.

Property managers are watching these trends play out. Mike Frazier, with Carousel Realty of Dyer County,Tennessee sees it every day. It seems the rental demand increased three fold in two months, he reports.

Does Bad Credit Bar Applicants?

Does this high demand for rental properties put the foreclosed homeowner in a squeeze as they try to rent with bad credit? How are landlords looking at tenant screening now that foreclosure has become so common?

Antelope Valley Property Managements Jonathan Mitchell with Classic Property Management of Santa Clarita, California gives careful consideration to applicants. We tend to look at foreclosures a little bit differently, he explains. For example, we rate them higher than someone who just got 50 credit cards and blew through them without paying. As long as the foreclosure is the only thing wrong with the credit, we can usually swing a deal.

Mike Frazier agrees.”If I have an applicant with a good job and good job history, I will usually rent to them although they have a bankrupcty or foreclosure.”

Screening the Landlord

Property Manager Josette Newton with BridgeWell Realty in Conyers, Georgia, is experiencing a different trend. “My screening and background checks are for informational purposes mostly for the landlord to make an informed decision. Its not credit score driven. Most importantly, we look for evictions and judgments and finally the debt ratio to make sure they can afford their monthly obligations. Bankruptcies should be one year seasoned as the individual is starting with a clean slate however and additional security deposit may be required.”

“The foreclosures havent affected my tenant screening process as much as me screening and choosing the landlords now a days. As you know the properties are not the landlords primary residence so its not as much as a priority. Some landlords are going through financial hardship in which, when they receive the rent its used for other purposes with the expectation of paying the mortgage for the rental property at a later date.

 

“To put it in a nutshell,” she continues, “based on the foreclosure activity that we are seeing, I look at the landlords a little harder than the prospective tenants. Even with sales, most sellers dont share the financial hardship that they are experiencing. I ask as plain as day, ˜Is the sale of your house time sensitive? Should it not sell within the time that you expect, how will that affect you…?”

 

What do you think? Please share your insights with other property owners by leaving your comment below.

 

American Apartment Owners Association offers discounts on products and services related to your commercial housing investment, including real estate forms, tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org.

 

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  • Martha Roosevelt

    I totally agree with Mr. Jonathan Mitchell with Classic Property Management. When screening a potential renter, the number one thing I zoom at is a great famous word of “EVICTION, Bankrupcies” then liens, late/unpaid bills. The reason of Bankrupcie(s).
    As we all know at this moment, house repo become multiple snacks a day almost. Having to lose your house could be from losing your job of one parents or both parents. No job offered to you for a long lenth of time perhaps. I was there before from the hill down to the valley so I can really feel and undrestand the situation. But we all need to be very careful on how we interview these folks that are coming thru this busy rental traffic. Communication and good interview eye contact sre the key to this business. You lean and give to the one(s) that you truly feel and sense the honesty form individual case.

    Wish all Landlords the best of luck in this business.

  • George Shay

    I too agree that bad credit doesn’t necessarily elliminate a tenant’s acceptance to rent my home. I also look for evictions and judgments and the debt ratio to make sure they can afford their monthly obligations.
    I have pondered the ultimate question as to, “why do people rent?” I came up with a myriad of answers, but mostly I feel one of three reasons is why people rent. – Foreclosures
    – Bad credit
    – extenuating circumstances i.e.divorce, buying property, not wanting to own, can’t afford a mortgage payment…

    I have some success renting to people that have bad credit with never having to evict a renter as yet.(15 + years) I think I’ve either been lucky or I’ve done a decent job of assessing renters’ character and their ability to be responsible renters.

    George Shay

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