There are two inter-related trends that will impact the property management business for years to come. The first trend involves the rapidly growing number of Americans who can’t afford to buy a house or have lost their homes in the “Great Mortgage Fiasco”. Hundreds of thousands of families across the nation have been faced with the unseemly choice of giving their house back to the lenders or experiencing the dread of foreclosure. More evidence is mounting that less than half of the foreclosures and REO houses have hit the market yet. That’s correct, more than 50% (and that may be conservative) of the mortgages that have gone into default have been foreclosed on and put up for sale.
Then there are the millions of “Generation X and Y” young adults who don’t have the money, credit scores or income to qualify for a home mortgage. Their only option is to rent or live with relatives. The demand for rental housing will be mushrooming in the months ahead. My most reliable sources of information tell me that Housing and Urban Development (HUD) and the Federal Reserve Board are working on some draconian plans to turn thousands of REO houses into rentals as soon as possible. There’s a looming shortage of rental housing.
The Good News and the Silver-Lining for Property Owners and Managers
Lest I sound negative let me share some anecdotal good news. The new breeds of resident-renters, especially those looking for houses to rent, are people who think like owners, not renters. Recently I interviewed two property managers in the Pacific Northwest. They both told me that they have to make allowances for credit scores when screening potential residents. In other words, many of these people have lost their homes and sometimes it isn’t their fault.
Many of their homes were desperately “under water” with little hope of ever breaking even. Some were couples and families where one of the wage-earners had lost their job and their income was reduced so drastically that they could no longer afford the cost of owning a home. Yet they think like homeowners, have that pride of ownership mentality, and don’t want to live in rental homes that are in run-down condition. So they actually want to take care of the places that they rent or lease.
This doesn’t mean that property managers can let their guard down when it comes to screening applicants to fill their vacancies. Just because applicants look neat and sound responsible doesn’t mean that they are. One of the most important ways to begin the screening process, and before you do a credit investigation, is to carefully observe and evaluate their attitude and manners. As one property manager told me, “I want to try to understand their values, their ethics and their heart from the very first meeting. First impressions are still important” she reminded me.
Does this applicant behave courteously? Watch their faces and look into their eyes when they are speaking. Do they act nervous, cagey or evasive when you ask them questions? Does he or she show indications of being difficult to deal with in the future? Did the applicants wipe their feet when stepping into the house? Is their car clean and in good condition? Did the applicant drive up to the rental while smoking? Can you smell smoke or alcohol on their breath while you’re speaking with them? Remember to ask the applicants lots of questions about themselves. Then be a good listener and hear what they have to say. Also ask them what their questions and concerns are.
You can learn so much about people and their character by simply letting them ramble on. Oftentimes it helps to pay attention to the details. Don’t minimize any criticisms or negative comments they make about their last experience as a renter. It’s encouraging to know that the latest wave of potential resident-renters wants to find affordable housing where they can make a life and stay for as long as they need. They’re more motivated than ever to treat rental properties as if it belonged to them. Yet once again, and I can’t stress this enough, it doesn’t suggest we can let down our guard on doing thorough background checks.
Hope for the best with applicants, but have both eyes and both ears wide open when it comes to making sure they are responsible and honest. Sometimes we are so anxious to fill vacancies and get a resident paying rent that we cut corners or overlook subtle danger signs. The results can be a nightmare, and it all can be avoided by sticking to time-tested screening and background protocol. It doesn’t mean we should become cynical or suspicious. We should anticipate meeting some very nice people with high enough standards. Yet we must make sure they’re as good as they look and sound.