It’s the golden rule of rental applicant screening technologies: Whatever happens, don’t get caught with your approval parameters down. Incremental adjustments to screening parameters, including credit scores, employment status and income, criminal background, and rental payment history, have long been used as a strategy for operators seeking to manage occupancy and bad debt matrices. The macrotactic is simple: too much vacancy, and you dial down your acceptance thresholds; too much bad debt in unpaid or overdue rent, and you kick your thresholds up a notch. In practice, however, many property managers often “set it and forget it,” inviting drastic consequences for a community’s renter demographic, occupancy, bad debt, and collections efforts.
“The big risk is you have a property that’s having a problem with occupancy and [its managers] open up their settings and forget about it,” explains David Carner, president of Carrollton, Texas–based RealPage’s LeasingDesk resident screening and rental insurance division. “A year later, you’ve turned over the entire demographic of that property, increased your bad debt load, and, consequently, you’ve lowered the value of that asset.”
For operators emerging from the recession and attempting to push rents, the situation has never been more relevant, particularly as most property managers made strategic adjustments to credit approval thresholds over the past two years to account for the flood of rental prospects coming out of a collapsed single-family housing market with default and foreclosure dings on their credit reports.
“Two years ago, we were really fighting to get prospects to move in, and our screening processes were quite different in terms of how much we were approving prospects with conditions,” says Peggy Hale, vice president of sales, marketing, and training for Morgan Properties, a King of Prussia, Pa.–based owner/operator of 30,626 apartment units. “We were fighting to help those folks get into our community, but right now, with the amount of prospects coming at our limited inventory, we’re in the driver’s seat and no longer need to take those risks. The rental pool is larger than rental availability in multifamily housing right now, and I’d hope that everyone is getting more stringent so that overdue collections are reduced.”
When it comes to the rental screening process, however, it’s never too late to make sure you’ve got the right parameters in place. These days, that means moving beyond a three-digit credit score and focusing on additional factors, be they a rental payment track record, credit history, or the ability to provide ancillary revenue. Indeed, screening providers and property managers say those are better indicators of a prospect’s quality—and a safer bet for long-term portfolio health.