How Property Managers Can Make Better Leasing Decisions
Why reviewing eviction records alone might not be the best way for property managers to choose potential residents.
When property managers lease to a potential resident, the last thing they want to worry about are late payments or the possible need for eviction. This problem, however, can be avoided if property managers look at prior evictions and rental-related records when choosing residents for their units, a new TransUnion report suggests. According to the report, collection records and prior evictions are highly predictive of future evictions. This information could be useful, as eviction losses cost an average $3,500 per unit, including court costs, lost revenue and other operating costs.
Reviewing rental evictions and collections records, as opposed to just public eviction records, is also more timely, Mike Doherty, senior vice president of TransUnion’s rental screening solutions group, told MHN. “One of the challenges with eviction records is they often take a long time to get through the courts, so it can take months to process and for them to be available to the public,” Doherty said. “So the idea was ‘is their other information that gets through quicker that might be also predictive?’ A lot of property managers quickly pass on if someone stops paying them…to a collection agency and when the collection agency tries to collect on past debt they’ll start reporting that information to us so it gets through the system a lot quicker.”
Aside from being more timely, reviewing rental-related collection records along with eviction records offers a better prediction of a bad rental outcome. TransUnion’s analysis examined the records of individuals who were evicted versus those who were not evicted from about 200 properties, finding that evicted residents have nearly three times as many prior eviction and rental-related collection records than non-evicted residents. Of those that were not evicted, 5.5 percent of residents had prior evictions while that percent rose to 21.7 percent for those who were ultimately evicted.
Involuntary turnover, which involves a resident missing a rent payment or other eviction causes, remains a problem for property managers. “Across the country, the statistics we see say that typical eviction rates over a 12 month period are 3 percent, so property managers are typically going through a process of evicting 3 percent of residents every year,” Doherty said.
He added that the percentage varies among property types (higher-end properties are more likely to have a lower rate than lower-end properties) and states, which have varying laws regarding evictions. “State law drives very different outcomes. In Texas you can kick off an eviction pretty quickly, but in some of the markets that I hear that it can take a long time include New York, D.C. and California,” he said.
TransUnion uses collection records and other credit behavior reports to predict negative rental outcomes for its proprietary scoring model, ResidentsScore, which ranges from 350 to 850. For the residents included in the study, those with a score of 650 to 749 had just a 0.3 percent eviction rate while the percent rose to 12.3 percent for residents with a score of 350 to 449.
“If someone stops paying their credit card, they might be a more risky renter than you might think, and things like scoring models can take that into account,” Dougherty said. “So using a scoring model like ResidentScore that’s designed to predict the outcomes specific to this industry in combination with eviction records is really the best combination you can use.”
TransUnion SmartMove also enhanced its eviction service in December 2014, which allows property managers to get a national report of applicants’ eviction history, including the plaintiff’s name, the location of the property, the date of eviction and the judgment. The service also recommends certain rules for what combination of ResidentScore and eviction history property managers should use to make the best decisions.
“There’s a lot property managers that will say, I’m just going to decline anyone with a past eviction record—that’s not necessarily the best outcome. If someone has an eviction record that was three years ago but I’m looking at their credit information and their ResidentScore tells me actually they’re likely to pay me, they might not be a bad risk and you should probably accept them…So just to use eviction records in isolation doesn’t get you the best answer.”