Did you know that application fraud costs multifamily property owners and operators millions of dollars in lost revenue and eviction costs every year – averaging $7,500 per eviction? In fact, in 2021 alone, Spirited flagged over 13,178 financial documents submitted with applications as fraudulent! This growing fraud epidemic in the multifamily space resulted in unpaid rent, damage to properties, and putting assets at risk.
Why is rental application fraud so prevalent?
There are several drivers in the rise of fraud impacting the multifamily industry. First, due to COVID-19, over 20.5 million jobs were lost, and the unemployment rate increased to 14.7%. No matter where the unemployment peaks, economists predict that it will take years to get the jobless rate back near pre-covid levels. Unfortunately, many unemployed or underemployed individuals resort to financial documentation application fraud to gain access to apartments they otherwise would not qualify for to keep roofs over their heads.
Secondly, the rise of online applications makes it easy to scan, alter and submit documentation. Suppose applicants don't have the technical skills to modify their documents. In that case, a simple web search for 'fake pay stub' supplies a disturbing number of websites offering these fraudulent documents for a small fee. While these factors may be new to the industry, they are here to stay.
The financial impact of rental application fraud
A survey conducted by RezRez research found that the average cost of an eviction cost property owners more than $7,500 – and this number does not include the costs of staff hours, legal fees, or damage inflicted to properties. As a result, the price of renting to a bad tenant can quickly add up since you're not just losing the income from the rent. These additional expenses are not always considered, leaving your profits at risk and managing a profitable portfolio challenging.
Whether moratoriums are in place or not, research shows that the best prescription to avoid significant financial losses is to prevent them in the first place. For example, in 2021, the estimated savings our clients saw by identifying fraud and preventing those applicants from moving into their properties was a whopping $105,000,000!
An innovative way to prevent losses for multifamily owners and operators
If an applicant falsifies their income statements or other financial documents, they are considered high risk. So, if you can cut down on these types of tenants before they move in, you are effectively reducing bad debt, cutting down on collections, and improving your portfolio overall. The problem is that fraud is difficult to detect. In addition, experienced fraudsters have become progressively professional at falsifying documentation. Training staff to accurately flag fraud on their own is a near-impossible task.
What property managers need is better technology to flag fraud at the first warning sign. Fortunately, we have the technology to detect falsified financial documents and prevent costly evictions with a simple addition to your current screening process.
Instead of a cursory look and "best guess" to determine whether a document is authentic, properties can use Spirited to ensure prospective renters provide legitimate documents to help mitigate this growing epidemic in the multifamily space.
Spirited can help you in three unique ways:
- Detect fraudulent documents with unique data-driven forensic methods
- Screen tenants faster by making informed decisions quickly
- Reduce time and money evaluating documents and evicting tenants
Spirited can help you reduce bad debt and evictions
Portfolio-wide Spirited saved owners and asset managers over $105 million in potential evictions and provided an ROI of 38x - further lowering bad debt reported to investors. Utilizing Spirited is an affordable and vital step in validating financial documents and helping reduce bad debt for owners. So, what are you waiting for? Contact us today!
