Identifying the highest quality resident who pays rent on time every month is challenging. Failing to do so has significant financial repercussions and a direct negative impact on a community’s NOI. For Advanced Management Company (AMC), an Orange County, Calif.-based property management firm which owns or operates approximately 7,000 apartment homes, the need to rent to a higher-quality resident — one who is likely to pay rent on time each month and fulfill the terms of the lease as agreed — is critical.
Traditional screening practices have relied on various criteria, such as credit scores and manual verifications of residency from previous communities, to evaluate the potential risk posed by applicants at the point of lease. In conducting manual rent verifications, AMC found that the information received about an applicant’s prior rental history was highly subjective and often inaccurate.
In addition, the time required to conduct the manual verifications was significant and a drain on operations. Further complicating the screening process, a significant portion of AMC’s resident demographic — students and immigrants — often had limited or no credit history, yielding them credit unscoreable. Additional, objective information was required to evaluate the risk of an applicant.
To meet the need, AMC, through its resident screening partner, accessed Experian RentBureau rental payment information, including information on more than 10 million residents nationwide to determine an applicant’s likelihood to pay rent in full and on time. The data, updated every 24 hours, provided AMC a prospect’s history of rental payments, previous and current lease start and end dates, as well as any bad debt balances or recent skips.
Eliminated manual rental verifications
As a result of accessing an applicant’s rental payment data, AMC eliminated the need for manual rental verifications. The time saved allowed the firm’s on-site teams to focus more on delivering great customer service to existing residents and less time gathering and analyzing potentially biased information to determine if an applicant should be approved. In addition, AMC found the objectivity and transparency provided by the rental payment data critical in the leasing decision and began weighing it heavily in the screening process.
“We believe residents’ previous payment history is, without question, the biggest predictor of how they are going to pay in the future,” said Carrie Polonsky, Director of Sales Performance for AMC. “Historically we would rely on manual verifications of a prospect’s previous housing to gain insights into their payment habits. However, those methods often proved to be not only time consuming but not the most accurate, as some property managers weren’t forthcoming or honest about a resident.”
Reduced skips and bad debt
The Experian RentBureau rental payment data also helped AMC better address the “gap” between when a resident is either evicted from a property or skips out on their rental agreement to when that outstanding debt information is reported on a credit report. Collection information can take upwards of 90 days before it’s available on credit reports, but since the Experian RentBureau database is updated every 24 hours, AMC was able to quickly and easily identify prospects attempting to skip from another community without fulfilling their lease obligations.
“Accessing the data during our screening process ensures we are not renting to any prospects owing money to any landlord. We will not rent to anyone who owes money to a landlord, period. If a prospect wants to live in our community, they must settle that debt first,” said Polonsky.
By accessing rental history data as part of the screening process, AMC is minimizing risk resulting from skips, late payments and bad debt and helping other communities get paid outstanding debt balances from prior residents. By sharing resident rental payment data, AMC is helping other portfolios identify risky residents before they move in owing back rent.
“By furnishing or sharing AMC’s rental payment history to Experian RentBureau, we are able to ‘share the love’ with the industry as a whole. When owners and managers don’t share data, skips and outstanding debt go into a ‘vortex’ leaving everyone open to financial risk. Sharing of rental payment data is going to benefit all of us — all property management companies. And if we understand that, we participate more and we are better off as an industry. Act now. Do it immediately. Participate immediately. Run, don’t walk. Because the sooner you get this information, the better off you are going to be,” said Polonsky.