Bad Credit Credit Cards – Predictions For The 2021 Residential Rental Market

CEO of Snappt and President of Berlind Properties.

We all collectively scratched our heads and asked “what just happened?” in 2020. Now in 2021, we’re looking ahead and trying to make predictions for the year. While we are still living in unpredictable times, there are a few things that we can be confident will come to pass in the months to come. 

The Economy Is Set To Soar

Just about every economist is pointing to an economy set to explode in 2021. A December 2020 Wall Street Journal article explained why, noting a few specific catalysts: 

• New businesses are exploding — there were new applications for 1.6 million in the third quarter of 2020 alone, nearly doubling the previous year’s pace.

• The move online we’ve all experienced during the past five years set up businesses to not only weather the storm but, in many cases, flourish.

• There is tons of cash sloshing around. The Federal Reserve reports that Americans have collectively made $2 trillion in new savings deposits since the pandemic hit.

Combine this with pent-up demand from consumers who have been sidelined since last February and with the arrival of vaccines, and the economy looks like a rocket on final countdown.

How This Affects The Residential Rental Market

All taken together, this means we can expect tenant applications to soar for several reasons. First, despite severe hardships to specific industries (hospitality, travel, restaurants), many Americans are doing pretty well. Plus, as working from home becomes the new normal, many workers are fleeing dense urban jungles for more enjoyable environments (think Santa Barbara versus downtown San Francisco) and renting homes as they relocate.

That said, there is a dark side of the new normal that has the potential to confound unsuspecting landlords: damaged credit. We saw this in 2009 and 2001 as well. Maxed-out credit cards are not abnormal these days — nor are applicants who seem low on cash reserves or applicants with relatively new jobs. Late payments on credit histories are more common than ever.

We’re used to using these signals as indications an applicant might have trouble paying rent down the line. But the past year was anything but normal, and as we go forward, we may need to be more flexible than normal. Some of these apparently poor risks may actually be great potential tenants.

I think of the story of Amadeo Peter Giannini, the son of Italian immigrants who, in the aftermath of the 1906 San Francisco earthquake, set up a make-shift bank on a wharf and made loans to desperate locals on nothing but a handshake. His small bank — the Bank of Italy — flourished by capturing so many customers at such a fateful time. You may know it better today as the Bank of America.

Applicant Evaluations In The New Normal

As a landlord today, though, you should probably bank on more than a handshake. But what can you do in this post-pandemic world to balance the opportunities of a soaring economy with the risk of bad tenants?

• Learn to discount minor, pandemic-driven noise. Maxed-out credit cards, lower cash reserves and new jobs are more common and less predictive than in normal times. Learn to look beyond these traditional measures.

• Pay attention to the big things. That said, some things are still instant disqualifiers. Foreclosures, evictions, bankruptcies and failure to pay are all indications of a substandard applicant. These are the big things.

• Watch for fraudulently-altered financial documentation. A relatively new job is something you can overlook, but fraudulently-altered financial documentation, for example a fake paystub from someone with no job, isn’t. Neither is a falsified bank statement. 

I suspect all of us are eager for a prosperous 2021 after living with the Covid-19 pandemic throughout 2020. All signs are that this will turn out to be an excellent year. But remain careful — there are risks as well. Nonetheless, with proper precautions, 2021 can be a profitable year for property managers.

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