Even the most seasoned property managers fall victim to tenant fraud.
According to a 2020 survey conducted by ReRez Research of 100 property professionals, two-thirds of them experienced losses due to fraudulent rental applications. As for the remaining third? Just give it time: applicant fraud is on the rise and more sophisticated than ever.
Among other causes, market opportunities and economic pressures induce deceptive tactics. The growth of a gig economy limits information available for vetting applicants and technology-enabled tampering refines the means with which any document can be manipulated. Even before economic fallout due to the COVID-19 crisis, applicants commonly falsified documents to meet income eligibility requirements. In early 2020, the majority of property managers said the incidence of fraud is staying the same or growing by as much as 15% percent every year. During the pandemic, applicant fraud in the residential rental market increased another 9% month over month.
Manual Fraud Prevention Strategies
Though labor-intensive, inspecting documents, calling contacts and checking for inconsistencies can expose fraudulently altered files.
Property managers can take notice of visual cues in every document: Is the text crisp and clear? Or does it seem hazy, as if the data has been copied many times? Furthermore, transactional details on a bank statement should align and match the formatting of documents previously authenticated from the same issuing organization.
To verify claimed income, many property managers call employers listed on an application. To confirm they reach the appropriate person, managers may look up contact information for the company in other directories. During a discussion, they are sure to ask questions only an employer would know.
Online research also enables property managers to check for inconsistencies or dead links listed on forms. They can view LinkedIn pages to confirm the existence of lesser-known entities or search for the companies in online databases such as sba.gov or opencorporates.com.
As experienced real estate investors and property firms commit substantial resources to fraud detection many culprits continue to prove elusive. What are the challenges in money, time and operation facing today’s professionals?
Fraud increases evictions. According to the survey, more than 20% of property managers say one in three evictions are due to fraudulent applications. At an average cost of $7,685 per eviction, large property firms lose millions of dollars annually in unpaid rent, legal fees and other costs.
The typical property manager reports spending four hours to vet every application. One in five respondents dedicates more than ten hours to the indispensable task. For a large property firm, hundreds to thousands of hours every month are spent determining if documents are real or fake.
Authenticating information and spotting fraudulently altered documents ranks as the most troublesome frustration among close to 60% of property managers. Half of them say it takes too long.
Automated Detection Capabilities
While manual efforts may uncover tampering, results can be inefficient and unreliable. What can investors and managers do to prevent financial fraud and boost their opportunities to build wealth, increase productivity and secure convenience?
Since deceptive applicants use the latest technologies to create fraudulent information, many property managers are employing advanced capabilities to detect altered data. Image analysis and algorithms catch document manipulation that the human eye can’t see.
By flagging problems before they can grow, fraud detection software decreases the eviction rate. A property firm managing 3,000 units with a 10% average eviction rate can cut the rate in half and save more than a million dollars by integrating automated fraud detection into its tenant screening process.
Rather than poring over papers for hours, property managers spend minutes uploading digital files for image and historical analysis as well as data-driven review. They are freed to focus on building relationships and business value.
Machine-aided fraud detection certifies a document as fraudulent or authentic within 24 hours. Results are compliant with industry regulations.
Though tenant fraud continues to rise, property managers and real estate investors can protect and grow their portfolio with prevention strategies and technologies tuned to catch falsified documents before they cause problems.
Dan Berlind is the CEO of Snappt, Los Angeles.