If you’re tired of being inundated with commercials for large ticket items talking about how these are “unprecedented times” we’re living through, you’re not alone. Although the availability of vaccines has given us all some light at the end of the pandemic tunnel, we’re certainly not out of the woods in many ways, especially economically. Anyone who’s been paying attention to the state of affairs knows this isn’t a good time to purchase a new car, travel abroad, or go on a cruise. A recession is likely on the way (if it’s not here already).
This is a fact that’s not lost on many in the rental housing industry, especially as unemployment rates hit record highs this year. People are struggling around the nation, and the industry has essentially come to a halt. Many residents aren’t able to pay their rent – and in many cases, landlords and property managers still aren’t able to evict for unpaid rent. States that have reopened their eviction courts are facing a backlog, extending the burden on property owners. While the latest relief package offers minor respite for landlords, it’s not enough. Some property owners still aren’t able to pay their bills, while others have properties that are just getting by, but in desperate need of income.
With this in mind, there are still plenty of renters who are searching for their next home, but you should consider that the next vacancy you fill may look very different from one pre-2020. There’s a high likelihood that the next applicants you screen may not meet your typical rental criteria. Strapped for cash with less economic opportunity, you may find that a large portion of your applicants have lower credit scores than what you previously would have seen as acceptable.
Anticipate Lower Scores and Make Some Adjustments
While it’s reasonable to want tenants with good credit, it’s also important to look at the situation from all angles. Credit scores are important because they allow you to make an informed decision on which applicants present the lowest financial risk. However, every month your vacancy goes unrented costs you money.
The fact is, 2020 is really an outlier, and it may be beneficial to see your future tenant screenings through this lens. Nothing was normal about last year, so it’s likely this will be reflected in some of the applicant’s information. You may find some of the applicants have a history of steady work up until 2020, or that they had no history of evictions up until last year. In these cases, it’s best to consider making some allowances.
Here are a few ways you can adjust your rental policies or criteria to accommodate some of the special circumstances your applicants may have encountered in 2020:
- Modify your credit score requirements
One simple way to make an allowance for lower applicant credit scores is to lower the number you deem to be an acceptable credit score. However, if you decide to do this, it’s best to stay on top of the current news regarding employment rates and credit scoring analysis from credit bureaus to make sure you’re in line with any changes in the economy. Keep in mind that if you decide to go this route, you’ll also want to pair your credit checks with other methods, such as tenant verification, or a background check to give you a better idea of the applicant’s rental and employment history.
- Month-to-month leases
If none of your applicants have a credit score that matches your rental criteria, you may want to consider offering a month-to-month lease. Although this can come with its own problems, month-to-month leasing may be a good solution, at least in the short term. A month-to-month will minimize your risk if you’re not convinced the applicant will be able to consistently pay their rent; you’ll quickly get a feel for what you can expect and can make a decision on whether or not to renew the lease. If the tenancy doesn’t work out, you’ll at least have some income coming in for a while.
- Increase your security deposits
Another option you have is to increase your security deposits – although, make sure to consult with a lawyer to make sure it’s legal in your area. Having a larger deposit may give you some peace of mind in place of an ideal credit score.
- Require a co-signer
Requiring a co-signer is common for young renters who have little to no credit history, so it could be a good option for applicants who have struggled over the past year as well. If the applicant’s score is too low, ask them if they’d be willing to have someone with a higher score agree to cover a defaulted rent payment. If you have employees, make sure to discuss this with them as well, so they understand how to vet applicants and how to answer applicant’s questions regarding the rental criteria.
By taking certain precautions and making adjustments to your operations, you can ensure that your rental properties stay occupied – and protected.
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