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May 23
2008
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The Risk and Reward of Previously Foreclosed Residents
Posted by: Brent Williams on May 23, 2008 01:00 Tagged in: Foreclosure , Apartment Marketing
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Multi-housing News put out a great article today showing that there is actually less risk from renters, even after the foreclosure crisis (http://www.multihousingnews.com/multihousing/content_display/industry-news/e3i1752bc99a224d58049587d86107de9a2). In other words, undoubtedly many of those who have experienced foreclosures have entered the rental market, and yet the risk of nonpayment for the market actually went down during that time span. I had written a month or two ago questioning whether these type of renters were inherently risky, as evidenced by their foreclosure, or if they had really just gotten caught in a bad circumstance. Trust me, I'm not an apologist, but I do look at things economically, and it seems to be showing that it makes sense to actively pursue this market.
Another interesting quote from the article was, "Renters-by-choice is the fastest growing group in multifamily." This is huge as these renters are more attracted to the lifestyle and specific benefits apartment living brings. Therefore, they will be less price conscious. Of course, that also means you have to provide a differentiated living experience to realize those price benefits.
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Comments (12)
Thanks for the comment, Vala! Part of my thought process was the PR aspect of opening our arms to foreclosed residents. As an industry, we could have positioned ourselves as the savior rather than waiting on the sidelines assuming they will come to us (versus renting a house, for example). Our industry gets enough black eyes with crime issues/etc, so this was a way for us to throw some positive news in the mix. Unfortunately we dropped the ball!
As for seeing an eviction and foreclosure differently, I can definitely see the benefit of a foreclosure, at least in the current climate. With many of the foreclosures, they were not careful to understand the implications of a rising interest rate, but if the rate had not gone up, they would have been able to make their payments. That's not the same across the board, but I think that is a large part of it. Therefore, I think transferring them to rental payments that do not change throughout the year is much less risky than the sharply rising interest rate was.
Thanks again for the comment!!
As for seeing an eviction and foreclosure differently, I can definitely see the benefit of a foreclosure, at least in the current climate. With many of the foreclosures, they were not careful to understand the implications of a rising interest rate, but if the rate had not gone up, they would have been able to make their payments. That's not the same across the board, but I think that is a large part of it. Therefore, I think transferring them to rental payments that do not change throughout the year is much less risky than the sharply rising interest rate was.
Thanks again for the comment!!
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Brent - the issue that we've run into with prospects facing forclosure hasn't been the risk of their residency so much as the fact that by the time they get to us, their credit is already trashed... thereby making them hard to approve.
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I am not sure about viewing a foreclosure as an eviction. There is such a vast difference between home ownership to renting. For home owners, it is not just about a monthly payment as it is for renters, you have insurance, taxes, upkeep and repairs. On the heals of the sub prime catastrophe and those just wanting to live the American dream... Foreclosures hit good people that otherwise would have rented a few more years. The bottom fell out and they got stuck. I agree with Brent the risk is there, but low and consideration should be given to those who got caught up in the low rates, and just need a second chance.
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Brent I wonder sometimes about the crime issues. I know that majority of my residents love the fact we do a criminal background check as it makes them feel safe, the downside off of it is that I have had a denial on a criminal due to a misdemeanor for a truck driver who had a speeding ticket for driving 15 mph over speed limit. Then there is the part where we can run the criminal all we want, and we still get criminals, it just means they haven't been caught yet
I agree with you Tara by the time we get the foreclosures in, they are so hard to approve due to credit issues. The ones I have approved are the ones with a foreclosure but decent credit a side from that.
I would love to see some type of research on what demographic is in the most chance of an eviction, is it the foreclosures, the 18 year olds etc
I agree with you Tara by the time we get the foreclosures in, they are so hard to approve due to credit issues. The ones I have approved are the ones with a foreclosure but decent credit a side from that.
I would love to see some type of research on what demographic is in the most chance of an eviction, is it the foreclosures, the 18 year olds etc
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Connie - great comments all around. And I agree with the second chance note: We should be using our acceptance criteria to best anticipate future problems rather than simply assume bad credit history equals poor future performance.
Tara and Vala - Is it not possible to adjust the acceptance criteria to fit your goals better? Why would you be locked into a situation where you are turning away prospects that you would prefer to rent to?
Tara and Vala - Is it not possible to adjust the acceptance criteria to fit your goals better? Why would you be locked into a situation where you are turning away prospects that you would prefer to rent to?
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brent -
preaching... choir... you know how the saying goes...
preaching... choir... you know how the saying goes...
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Brent, company policy, our third party screening company is the only one who can override things. Takes the responsibility out of our hands and cuts down on these requests to the regional.
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I agree with Brent and Connie. We need to increase occupany with qualified applicants. If the forclosure is the only thing bad on thier credit I think we would get a quality resident.
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Thanks Beth!
Vala, I agree with the overall policy so that there are no confusions about what is acceptable; however, maybe it's time for the company policy to be addressed to adapt to the changing circumstances?
(And by the way, thanks everybody for making this a lively debate!)
Vala, I agree with the overall policy so that there are no confusions about what is acceptable; however, maybe it's time for the company policy to be addressed to adapt to the changing circumstances?
(And by the way, thanks everybody for making this a lively debate!)
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Brent - i think your comment is the way we need to view the whole situation - our industry needs to be flexible, adaptive, and capable of seriously evolving to fit the ever-changing needs of current and prospective residents. With the foreclosure situation being what it continues to be, it would make sense to me to adjust the application process and standards to be able to better fit both the prospects needs and the company's occupancy goals while still maintaining strong standards.
I guess it depends on how people define "quality resident" and how they view the foreclosures.
I guess it depends on how people define "quality resident" and how they view the foreclosures.
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I personally can not remember any of my foreclosure approvals being evicted or have skipped in the flora that is going through that right now. I personally think that when you have been through a foreclosure you know the value of paying rent on time.
Right now I am getting less and less of people going under foreclosure, I am getting more that are going through a short sale. And actually part of my outside marketing that I am about to add is to drive through the neighborhood and put fliers on doors with sale signs. Probably an old idea but new at my community.
Right now I am getting less and less of people going under foreclosure, I am getting more that are going through a short sale. And actually part of my outside marketing that I am about to add is to drive through the neighborhood and put fliers on doors with sale signs. Probably an old idea but new at my community.
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What Do You Think?
Now here is a thought though, isn't foreclosure an eviction so to speak...why would we look more lightly on that than apartment eviction.
Just a thought...