As the COVID-19 crisis rolls on, the nonpayment of rent is becoming a critical issue in the multifamily industry. Unemployment numbers are astronomical. Many are waiting to receive government stimulus checks. And renters who struggle to pay their rent because of job loss or other economic hardship may be shielded by eviction moratoriums.
Measures are in place in some areas to protect renters who are having a tough time scraping by. This can mean that even those who have rent money might choose to spend it on something else. Just because renters are capable of paying their landlord doesn’t mean they will. As stay-at-home mandates ease, cooped-up residents may be tempted to spend their money on deferred needs and desires rather than rent.
Eviction bans increase the risk of nonpayment of rent
As more than 30 million Americans filed for unemployment, short-term eviction bans (supported by the National Multifamily Housing Council) were set into place to protect delinquent renters. While April rents fared better than most expected, many industry leaders believe eviction bans will be extended, increasing the risk for apartment communities.
“If renters aren't paying bills but remain at properties for long periods of time, it pushes enormous risk onto apartment owners and managers,” says RealPage Vice President Jay Parsons. “It could potentially lead to apartment owners being unable to pay bills, pay taxes or make payroll.”
With the future uncertain, even new renters moving in now could present problems depending on what happens with COVID-19. And a failed lease typically causes $5,000-$10,000 in financial damage to a property, notes Matt Davis, senior vice president for financial services.
The biggest problem is that unlike three months ago, operators can't offset risk with more revenue. So it’s more important than ever to move in renters who have shown a willingness to pay.
RealPage AI Screening mitigates the risk of lost rent
Apartment operators are leaning on RealPage Artificial Intelligence (AI) Screening to determine not only a renter’s creditworthiness and ability to pay, but also whether there is the willingness to pay. The screening solution has uncovered $400 million in bad debt through an AI-based screening algorithm along with behavioral data.
The technology precisely analyzes applicants through the company’s rental history database, which includes over 30 million records.
Robin Fluharty, implantation and compliance manager at Pegasus Residential, and JVM Realty Vice President of Information Management Kortney Balas say now is not the time to relax renter screening. They're letting AI do the work and the results have been powerful.
Balas says that shortly after the onset of COVID-19 JVM Realty built risk profiles for each of its properties through demographics that showed where residents were employed and whether there might be a risk of nonpayment of rent based on job type.
The data essentially identified the number of residents who could pay and who were most willing to pay. Balas was relieved after April’s delinquency rate was under 2 percent.
“That willingness to pay could ultimately save your delinquency,” she says.
The company also has become much more diligent about using RealPage’s identity verification solution, which verifies residency history and employment. Balas says JVM Realty was satisfied using Leasing Desk for screening before the pandemic, but now AI screening is used extensively to help mitigate risk.
“Now we have a concern that people may property hop,” she says. “And it could be months or even years before these types of things are reported to the credit bureaus. So we're much more diligent about our residency verifications and employment verifications.”
Making better decisions as AI renter screening grows
Fluharty said AI drills deeper to find those residents who are going to pay. He said the worst thing property managers can do during a pandemic like COVID-19 is to relax screening practices.
Doing so exposes the property to greater financial loss, especially in the event that eviction moratoriums are extended.
“The great thing with artificial intelligence is that it's always learning,” Fluharty says. “The more you're on it the better decisions the program makes.”