The pandemic and its related economic strain have resulted in billions of dollars of uncollected rent. With the end of the pandemic drawing nearer, a resultant spike in evictions is likely. As you look to fill your new vacancies, it’s important to lease to people who can pay rent, and to weed out tenants who can’t. The only way to do that is proper tenant screening.
The eviction moratorium and rental assistance programs, to some extent, did a good job preventing homelessness. Per the Princeton Eviction Lab, between March 15 and December 30 of last year, there were 65% fewer eviction filings than in a typical year. But COVID-19 isn’t here to stay and neither is the moratorium.
As such, data from tenants and landlords suggest a higher than usual number of evictions in the months after the moratorium is lifted. According to the US Census Bureau’s most recent pulse survey (conducted between May 26 and June 7 of 2021) 16.8% of renters living in households that are behind on rent payments said eviction is very likely within the next two months, and an additional 28.7% said eviction is somewhat likely. According to our Innago survey of 440 landlords, 18.2% plan to evict one or more tenants after the moratorium is lifted. Typical eviction rates are between 2% and 3% annually, according to the Eviction Lab.
Some of these numbers represent a catch-up for the low eviction rates observed in 2020—tenants who would have been evicted last year, but weren’t because of the moratorium. But some of these coming evictions are a result of ongoing economic hardship. Although the Bureau of Labor Statistics reports unemployment rates well down from their spike in April 2020, they remain two points higher than pre-pandemic levels, sloping much more evenly than they did through their mid-2020 recovery. As always, unemployment rates include only those who are actively seeking jobs (leaving out those who have dropped out of the work force entirely) and don’t accurately represent the under-employed, people who took part time jobs to replace full-time ones, for instance.
That means the pool of people capable of paying rent is smaller than it was before the pandemic. Screening allows you to find these reliable tenants, at a time when eviction takes longer than usual. Eviction is a drawn-out process even outside a pandemic. With courts only beginning to process their backlog of cases, new eviction proceedings will further lengthen in the coming months—the courts have to catch up first. Given the smaller number of qualified tenants and the increased stakes of renting to the wrong person, finding a reliable renter has become more difficult and more important.
You would think this means that landlords are screening now more than ever, but our Innago internal data doesn’t show a clear increase in screenings per unit, despite the National Rental Home Council reporting that one in three landlords have tightened screening practices. The Entrata rental housing trends as of April show a spike in screenings per unit in March 2021 when compared to March of 2019, but this spike is limited to March. They also show a slight increase in screenings per unit for 2020 when compared with 2019, but nothing that would corroborate the NRHC’s claim.
Perhaps because people are having financial trouble, they aren’t looking to move, meaning that although screenings per application are increasing, screenings per unit remain steady, simply because there aren’t as many applications. Entrata data refutes this possibility, though. They show a marked increase in applications per unit through the early months of 2021, but no clear increase in screenings per unit.
Another possibility (and we believe the more likely explanation) is that landlords are becoming more rigorous in ways not captured by screening data. They may be more likely to follow up on previous landlord and employment references passed to them by potential renters, for example, or else more likely to flat-out reject tenants who are on the borderline of affording rent. Whatever the case, TransUnion reports a 10% decreased debt load for new tenants over the last year, and a 1.7% improvement in overall renter score, showing that screening practices have led to better tenants since the pandemic started.
The screening process begins with your listing. In addition to the features of your property, include the rent in your listing, and mention that renters are subject to a credit, background, and eviction check. Being clear about all of this prevents anybody from wasting time and effort in a doomed endeavor.
Once this listing generates a lead, follow up with a phone call or email asking for some basic information, like contact information and monthly income. Be sure to follow fair housing guidelines. The federal fair housing laws prevent housing discrimination on the basis of race, color, national origin, religion, sex, familial status, or disability. State and local laws may expand this list. Contact your attorney or the landlord group in your area to make sure you adhere to these laws with the questions you ask. Note that you may be unable to discriminate based on source of income. Whether you are comfortable renting to somebody on unemployment or not, it’s important to understand how these laws apply to your property.
If this brief pre-screening conversation looks promising, provide the potential tenant with an application and ask for income verification such as a recent pay stub. Make sure the application includes employment references and at least two previous landlords (the current one may simply want to get rid of the tenant, but the one before has no incentive to lie). After that, run their credit and background check (probably through a third party, unless you want to subject yourself to an inspection by credit authorities). Make sure to follow up on the employment and residence information the tenant provides. You can handle all of these facets of screening yourself if you prefer, but property management software provides a hub for tenants to upload their info, and can provide credit, criminal, and eviction checks based on one application.
Once you have all the results of this screening, you’ll have a better idea of what kind of renter you might be signing up. Nobody is perfect, but some people are outright unsuitable. The purpose of screening is to distinguish the two, so that you are left choosing from qualified tenants.
Whether you own one unit or one thousand, it looks like lots of people are going to be on the move this year. As you look to fill vacancies, a thorough screening process can help ensure that you are renting to a reliable tenant. Bear in mind that many people who were steady renters before the pandemic are likely to become steady renters again, even though they may have experienced a dip in credit score recently. The holistic picture that screening tenants provides is crucial to gaining the whole story before signing a new lease.
About the Author
Innago is a free, easy-to-use property management software solution, designed to save you time & money. Innago allows you to easily: collect rent, screen tenants, list properties, manage work orders, create applications, sign leases, organize financials, communicate with tenants, & much more! Learn more here