As the suppression of the economy continues, the effects are going to become more wide ranging. The numbers of people negatively impacted will increase and the ripple effects are going to be felt for months if not years into the future. As landlords, we will see these ripple effects as we screen and select future tenants. A lot of folks will have faced hardship. Landlords will need to keep that in mind and perhaps rethink and reevaluate our tenant selection criteria as we all move forward. What worked well pre-suppression, may not after.
To see where I am coming from think about some of the criteria that you currently use to screen and select tenants. Qualifiers such as income, employment history and past rental performance have long been used to find tenants who will stay, pay and respect our properties. A lot of what makes up those qualifiers has been disrupted for many folks due to no fault of their own. Now, do not misunderstand me as I am not saying that we will or should have to give up those qualifiers. But I am saying that we may need to be a bit more flexible and perhaps even more generous with them in the future.
For example, many landlords use an income qualifier, such as requiring an income of three times the amount of the rent, to select tenants. In other words, if the rent is $1,000 per month than an income of at least $3,000 per month would be needed to rent the property. In the past, this qualifier has generally been easy to verify as there was usually a definite and traceable work history. Will this be so in the near future?
Another frequently used qualifier is a steady work history. Landlords like continuity. We want to see that our prospective tenants can not only afford the property, but have also been consistently working at the same job, or same type of job, for a consistent period of time. After all, we do not want them to move in and then quit or lose their job. Such a situation is not conducive towards consistent rent payments. Consistency has been found routinely in the past. Will that pattern continue?
Layoffs and furloughs have reached points not seen since the days of the great depression in the 1930s. Many of our future tenants are therefore going to have gaps in their employment history. They will have changed jobs, moved towards new careers, moved to new locations and otherwise changed what was once a clear and stable pattern.
Past incomes and work histories may become more difficult to verify as businesses close and never reopen. Tenants may have moved back to their parents home or in with friends to conserve limited funds while getting back on their feet. In sum, patterns will change, sometimes significantly, and we landlords are going to have to be cognizant of that going forward.
Going forward, the keys to qualifying tenants will remain the same as always, that is uncovering patterns of negative conduct. But I believe the current disruptions that we see in the economy will alter these past patterns into things that could be perceived as negative. We will see many more disrupted life patterns. And while once that may have led us to potentially reject these folks I think going forward how we view these patterns may need to change.
Most of the time however, when prospective tenants are truthful about their past situations on the front end, the patterns usually line up and we are able to put the pieces together. Going forward, we landlords need to be aware that the pieces in the tenant qualification puzzle are perhaps going to be a bit more jumbled and take a bit more time and effort to put together.
Have any thoughts on how the business of landlording may change as the economy opens back up? Please share with a comment.
Kevin Perk is the founder and publisher of Smarterlandlording.com. He is the author of Advice From Experience To New Real Estate Investors. Subscribe to Smarterlandlording here. Contact Kevin here.
