Successfully Using the Past to Manage in the Present
-David Pickron April, 2020
We have all heard the phrase “live in the present and forget about the past,” but rarely do we hear the opposite of that. Currently we are in a challenging situation in regard to managing our properties and are being forced to do things in unfamiliar ways. Social distancing has changed the way we show properties, perform move-in and move-out inspections and have work orders completed. Those are easy accommodations to make when we consider the larger and more longstanding economic issues that will drastically impact our industry.
Our present-day situation is an intriguing one, overflowing with a variety of unanswered and possibly unanswerable questions. Although we have been enjoying one of the greatest economic runs in history, things have and will continue to change. We are exchanging record low unemployment numbers with 26 million unemployment claims, and more on the horizon. Businesses have been forced to close by State governments to stop the spread of Covid 19. And all of this directly impacts our industry as State Governors and the Federal Cares Act have prohibited evictions on federally backed loans for 120 days. Come July 26, 2020, we may see an overwhelming onslaught of evictions in numbers we could have never imagined even 2 months ago. If a tenant could not pay their normal rent during the 4-month reprieve from evictions, what makes us think that they will be able to come current with 3 to 4 months of back-owed rent when the time arises.
Looking ahead, we must ask ourselves this question: Is an eviction from April 2020 to August 2020 the same as an eviction a year ago? We would be challenged to honestly answer “yes” to this question. As we consider tenants for our properties over possibly the next few years, we will need to consider both the past and the present, giving proper weight to the circumstances many of us will be in by no choice of our own. Professionally, I recommend putting more weight into these three areas as you qualify your applicants.
Pay attention to time. How were the applicants doing prior to March of 2020? Did they have any blemishes or evictions in the last year? Did they have any judgments or negative credit activity prior to Covid? Would you have rented to them in February 2020?
Analyze their employment. Were they employed throughout the Covid shutdown but still had an eviction? Maybe they took advantage of the situation when it was presented to them and stopped paying rent to stockpile cash. That is much different from a restaurant worker whose job was taken from them by government mandate. No matter what the situation is, can they pay their rent today? Do they have a current stable job moving forward? Always review their paycheck stubs, focusing on Year to Date totals, to get an idea how long they have been working. A call to the employer might be necessary if a paycheck stub cannot be produced. I personally ask for 2 paycheck stubs. Its easy to doctor up one, but to change two paycheck stubs and make all the YTD figures match is often too much work for a scam artist. An emergency room nurse in my neighborhood was furloughed by the local hospital because no one was coming to the ER. You might think all medical personnel would have retained employment, but with elective surgeries stopped by most governors, all trades were affected, not just restaurants, tattoo shops and bowling alleys. An applicant with a steady employment history through these times is going to be a “diamond in the rough” in the rental world for the next few years.
Always perform a rental verification. A good rental verification will give you information a credit bureau cannot. Last year eviction data was removed from credit bureaus. There are only two ways to find evictions now. One is through a direct court search of civil filings, and the other is by calling past landlords. Many landlords have been coached by their attorney to only provide “move in-move out” data, while other landlords will give you more than you want. Most of the time if a landlord did not get their rent, they want to protect other landlords and will share lack of payment information about a renter. Always be cautious when contacting a current landlord because if a tenant is really bad, they will say anything to get rid of them. I always advise my clients to go back at least two landlords to get the most honest and helpful feedback; a past landlord has nothing to lose and the truth will come out.
Following the financial crisis of 2009 over a decade ago, I took a chance on renting to 3 individual families that lost their homes to foreclosure. It is encouraging to report that they are still with me today, over 10 years later. Using these three principles we have discussed, I found people with a “homeowner mentality” who needed to rent my investment properties. They went through a tough time with their own homes being underwater and eventually lost them. To their credit, they kept their heads high, knowing that they were caught up in forces outside their control. We will find people in the same situation here. Will good people get caught up in this mess? Yes. Will many of them be great renters in the future? Yes. So maybe it is time to look to the past and forget the present when identifying the people that will be paying you rent for the next 5 years.
David Pickron is a Landlord and Owner of Rent Perfect. His company provides a free online platform for managing rentals starting with online rental applications, background checks, online lease signings, move-in inspections, renters insurance, and online rent pay all from your phone or desktop.
Rent Perfect is a preferred vendor of National Real Estate Investment Association