Peter Lohmann's Newsletter - Issue #161

What Actually Matters When Screening Tenants? Nobody Knows.

In the world of residential rental property, there’s an endless amount of boring articles, webinars, and podcasts about tenant screening - i.e. how best to filter out “bad” tenants (those who will damage your property, fail to pay the rent, or be evicted, among other things) from “good” tenants.

Each PM & landlord is more confident than the last regarding the best strategy for who to accept and who to reject. Yet, my contention is that none of them actually know.

Traditionally, property managers will look at what I call the “Big 5”:

1. Credit Score

2. Income

3. Residential History

4. Criminal History

5. Eviction History

Yes, I have never seen or heard of a single property manager back up their screening methodology with data. Instead, each individual property manager or landlord selects their own criteria (minimum credit score, minimum income, what to consider with regard to criminal history, how far back can an eviction be, etc) based on nothing but their own intuition and “experience”. Tenant screening results represent a probabilistic distribution of outcomes, and effective rules-based screening cannot be determined by the data available to any single operator. Particularly because an entire side of the data is invisible—the group of applicants who actually would have been great tenants, but were incorrectly declined because of unsophisticated screening techniques.

What’s interesting is that mortgage lenders (who presumably have studied the data) completely ignore items 3–5, relying generally on income and credit score alone. Why do landlords think they know better?

TransUnion is doing some interesting things with their ResidentScore (essentially a credit score developed for landlords). They claim to have developed a credit model that accurately predicts the likelihood of a bad tenant. However, they give no guidance when it comes to what minimum score you should use. And what about items 2 through 5, which do not factor into credit scoring models?

Nobody knows. Perhaps some of the Wall Street landlords like American Homes 4 Rent are tracking various data points for tenants who move in, and then using sophisticated statistical modeling to examine how those items affect the likelihood of a bad tenant. I doubt it, and if they are they’re not talking about it.

I fear that credit scores, eviction history, and criminal history will all eventually be banned from factoring into approval decisions. We need to act on this problem asap and develop models that do not rely on credit history.

Getting this right would be a big deal for landlords and tenants alike. As it stands today, people who would actually be great tenants are getting declined, and bad tenants who slip through the system are causing mayhem for property owners, to the tune of many thousands of dollars in lost rent and repairs. It could also make high security deposits a thing of the past, which are only necessary because landlords have no way to really know if a given tenant will go bad.

Note: I originally wrote about this problem in early 2018 and nothing has changed.

-Peter

The Future of PM Credibility

When I first heard about PropertyManagement.com, I assumed it was just another pay-to-play lead gen site. I almost didn’t take the call.

But what they’re building is actually different. They’re ranking property managers nationwide, publishing a Top 100 list, and giving companies free verification that could boost credibility in ChatGPT and Google’s new AI search results.

This week, I talked with founder Matt Speer about why credibility (not leads) is the new currency in property management, and how his team is trying to tilt the online playing field back in our favor.

If you’ve been feeling the squeeze on organic leads, this one’s worth your time:

Want to get verified and apply for the Top 100? Start here.

Note: This is a sponsored podcast special with PropertyManagement.com.
I accepted support to take a closer look at their platform, but the questions and opinions are 100% mine.

(You can also listen on Apple Podcasts or Spotify)

I’m curious how leasing was for you this summer. I didn’t notice too much of a change here in central Ohio (we manage over 700 SFR and small MF properties), but let’s determine the broader consensus:

New Property Management Companies For Sale This Week

• Here’s a PM company for sale in San Francisco, CA (asking $725k, 15 clients)

• Here’s a PM company for sale in Fontana, CA (asking $350k)

• Here’s an air duct vent cleaning business for sale in Dayton, OH (asking 275k). Could be an interesting bolt-on to an existing PM business.

• Here’s an PM company for sale in Orange County, CA (asking $2M, 200 doors)

This section is sponsored by PMW. Grow your property management business with PMW’s high-performance websites, SEO, and tools that convert. Grow fast with PMW.

Industry News & Events

• ChatGPT announced an integration with Zillow. It lets renters search for homes and apartments for rent directly within ChatGPT using Zillow’s data and interface. Not great for SFR listing marketplace competitiveness. Zillow is pulling further and further ahead.

• More Zillow news: They announced an AI chat integration for multifamily with EliseAI.

• Landlord ordered to pay $20k in emotional support animal (ESA) lawsuit involving RATS.

• Portland property manager sentenced to 5 years in prison and fined $1M for embezzling Section 8 rent payments.

• RentEngine just announced their Q3 leasing report webinar (these are excellent).

• PropertyTek (PE backer of ShowMojo and Tenant Turner) names new CEO.

• Crane applications close today at 11:59pm PT and will not reopen until Spring 2026. Last chance to apply.

Closing Thought

A few quick things before you go…

• Last week’s issue went to 20,314 readers (57.1% opened, 3.7% clicked)

• The most popular link was Single Family Property Management - $2m in Revenue (66 clicks)

• Interested in sponsoring this newsletter? Currently sold out.

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Software I use to run my 700-door property management company in Central Ohio:

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The content of this newsletter is for informational purposes only and does not constitute professional advice. I may have consulting agreements with, or financial interests in, companies mentioned in this newsletter. Additionally, some of the links included in this newsletter are affiliate links, meaning I may earn a commission if you make a purchase through these links. Always perform your own due diligence before making any financial or business decisions.