How Tenant CoVid Era Behavior is a Predictor of the Future
Knowing how your applicant did in the “CoVid” times will be important information to protect ourselves in the future.
As a newly married man in my mid 20’s, my wife and I went out and looked at new homes as we were trying to decide where to lay down our roots and start our little family. We walked through what seemed like a never-ending parade of homes to see what was on the market. When my wife walked in the last model home, which was decked out and highly upgraded, her jaw hit the floor and she looked at me communicating non-verbally that this was the one; she had found her dream home.
Being new to the house buying game and admittedly a little naïve to the process, we started our journey to purchasing our first home. Finding the home was the fun part but qualifying, along with the accompanying mountains of paperwork, was another. After my wife picked out her upgraded white cabinets our first home cost $114,000, and all I could think about was how am I ever going to qualify and afford the payment? But after looking at my wife and seeing that look in her eyes, I knew one thing for certain, I was buying that house.
The lengthy purchasing process began, and I was soon being asked for bank statements, cancelled checks, and explanations on deposits and activity that were on my young credit report. I had to produce paycheck stubs and tax returns and other things I couldn’t understand why they were possibly needed. I remember getting a request for an explanation on why First Mortgage had pulled my credit, especially because it was First Mortgage who was processing the loan. As many of you have been through this process, sometimes it’s just better to write the letter than to fight the stupidity, as it seems the process becomes more about getting the file to particular thickness to show all the things the underwriters did to approve the loan.
Those days were tough for a young 20 something but I eventually got the home. I continued purchasing homes through 2007, with relative ease and minimal down payments. In fact, I even went the route of “stated income” and bought 3 homes at one time; no one even questioned me. Then came the 2007 housing crash and everything changed. No more easy qualifying, new 25% down payments on investment homes, and maximum cap on the number of homes you could own as an investor etc. Underwriters were now responsible if you defaulted on future mortgages and that completely changed the game. What I thought was hard in my 20’s became impossible in the late 2000’s. The files went from an inch thick to five inches. Mortgage providers were paying the price resulting from the laziness they created in prior years.
Similarly, today we find some of our landlords effectively “bleeding out” because the rental game has changed.
- The major question plaguing landlords is “How do I rent to someone when I know I might not be able to evict them for non-payment of rent?”
- Secondarily, you must ask yourself how will you know in the future if your applicants had been financially responsible during this period affected by CoVid?
Like the underwriters post-2007, it’s time to demand more information and make qualifying to rent a home a little harder in order to protect you in the future.
As a landlord, I want to know 2 things outside of the standard criminal, credit, and eviction search that I require for every applicant.
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First, do you have a solid job that will allow you to afford the rent? The importance of this is obvious but often overlooked by anxious landlords who are just hoping to make next month’s mortgage payment.
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The second and equally important question is “Did you get laid off during the shutdown, file for unemployment, and still pay your rent? This is a critical factor in knowing how responsible this applicant is in handling their financial obligations.
I found the easiest way to get these answers are first, get the last two months of paycheck stubs and look at the Year to date. If it is January, the December paycheck stub should show you how long they worked with their current employer by reviewing the Year to Date totals. If it is February, you might want to go back a few months, so you have more data than just the current year. Do not hesitate to ask for the same information from a prior employer paycheck stub if needed. Second, I want to see the last twelve months of rent payments, either by reviewing copies of their bank statements for that time period or seeing twelve cancelled checks.
If an applicant does not want to give you this information, let them walk. There is no reason to take a chance on someone that cannot produce the proof you need. It’s much healthier for you to view this as avoiding a certain problem than losing a potential tenant. The right tenant who really wants your property will produce the information. Just like those late 2000’s underwriters, it’s time to tighten up our criteria and ask for more proof to make sure we protect ourselves and our investments during these high-risk years.
About the Author
David Pickron has been a licensed private investigator for over 20 years, specializing in tenant screening for real estate investment owners and property management companies. His company, Rent Perfect, an Investigative Screening Company, helps clients onboard tenants from the initial background check to leasing and payment collection. You can learn more by visiting www.rentperfect.com or calling 1-877-922-2547.