10 Ways to Catch Fraudulent Applications

By Robert L. Cain, Copyright 2020 Cain Publications, Inc.

One in three rental applications contain some kind of fraud, reports snappt.com. in 2020, the company surveyed property managers and came up with that figure and others just as telling revealing the carefully generated fake documents landlords see on rental applications.  It’s usually income, but it can be far more devious than that. Of those who admit it, says the snappt.com report, two of every three property managers have been fooled at some time by phony documents.

It’s easy to create a phony document, one that will fool many people, including landlords anxious to get a unit rented.  Time was when tenants had to work harder to come up with doctored documents to prove their rent-worthiness.  Now all it takes is a visit to a website.

Get It Rented!: Little-known tricks and secrets of marketing rental property to attract good tenants in good times and bad by [Robert L. Cain]

I checked out a few of those websites.  Fakepaystubs.net, pay-stubs.com, and thepaystubs.com all promise quick and easy documents to prove whatever you want proved. Fakepaystubs.com, for example, provides instruction and services for

“How to edit my paycheck stub
How to get my check stub online
Create a pay stub
How to edit a scanned document
Online PDF Editor
PDF Editor Service for Paystubs
Editing Scanned Documents
The PDF Editor Service
Editing Fake Paystubs Service
Editor of Fake Paystubs Service”

In addition, beside fake paystubs, they will create bank statements, credit reports, utility bills, credit card statements, and tax returns, running the gamut of documents meant to fool the less than diligent landlord.   Of course, they insist that they are just for fun and should never be used in real life; “Services provided here are only for Novelty, Education and Entertainment purposes.”  Another site even offers two people pretending to be employers and previous landlords to answer calls from anyone checking the application.

All of this has become epidemic recently because of how easy it is to create documents online.  With due diligence, you can easily flush out fraudulent documents and applications. The most important point is: BELIEVE NOTHING ON A RENTAL APPLICATION UNTIL YOU HAVE VERIFIED IT.

Find out after they have completed their fraud and moved in, and you most certainly have the right to evict these tenants, assuming you can actually still evict where your property is.  The average eviction though, reported the Snappt.com survey, costs $7,685.  And that’s just for the cost of the actual eviction.  It doesn’t include the lost rent and property damage done by a bad tenant. Never allowing them move to in to begin with provides the best protection for your investment.

Here are 10 things to do to ferret out a fraudulent application and keep from renting to a lying tenant.

  1. Make sure the application is completely filled out, no exceptions.  If your applicant has a bad attitude about your insisting it’s completely filled out, simply reject the application.
  2. How do the documents your applicant submits look? Are the numbers, account numbers, phone numbers, income figures, everything  the same across all documents?  Look at formatting to see if it is consistent in documents from the same source.  For example, does a bank statement look like the actual bank statement from that bank? Check spelling and grammar. Spelling and grammar errors are a sure sign of fraudulent documents.
  3. Call the telephone numbers on the application and documents to make sure they are working numbers.  Then compare the phone numbers on the application with the phone number of the current and previous employers, the ones you find on the employers’ websites or in the phone book.  No website? Be extremely careful.
  4. Verify start and end dates with employers and landlords to make sure they match what’s on the application.  If they don’t, ask your applicant about missing periods of time. The answer had better be good. Check with the current and previous employers to verify income.  Don’t rely on possibly phony paystubs submitted by the applicant.
  5. Look at Facebook and LinkedIn pages and online databases such as opencorporation.com and sba.gov to make sure the applicant’s employer is real.
  6. Check the applicant’s credit report to see if the dates and addresses match up with what’s on the application.  Don’t rely on a credit report an applicant provides; pull the report yourself. 
  7. Do a Social Search to see if the Social Security information is the same as what’s on the rental application.  People using a phony Social Security Number will show up with different names, addresses and dates than those claimed on the application or not show up at all.
  8. Call previous landlords for references. Check to be sure the phone number you are calling actually belongs to the landlord or manager and not a friend posing as a property owner.  One suggestion I saw recommends calling the numbers of previous landlords and asking if they have a two-bedroom unit for rent.  If they answer that you have the wrong number, that waves a huge, spotlighted red flag. Check county tax records online to see if the name of the property owner is the same as the landlord’s listed on the rental application.
  9. If you still haven’t rejected an applicant after finding inconsistencies, ask the applicant to provide hard copies of the documents or to print out the documents in your office.
  10. Spend the time to do a proper screening job.  The Snappt.com survey reports that property managers spend between four and ten hours on each application. Whatever time spent will be worth it if you find a fraudulent application and spare yourself a bad tenant and an eviction.

You don’t have to check every application if you screen in the order the application is received.  The first acceptable one, the one that meets your strict rental standards and passes muster can be the one you accept. Just be sure to make your rental standards are so meticulous that anyone who meets them will be an acceptable tenant.

Bad tenants, tenants who have a spotty or horrible rental history, are not going to start being good little boys and girls.  They’ll keep up their tricks as long as the tricks work and will learn new ones when the old ones wear out.  They’ve worn out their welcomes everywhere they’ve lived.  Don’t let them add your property to the list.

Written for Zip Reports where they provide applicant screening services.

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Rich Guys Love Recessions. Here’s Why.

By Robert L. Cain, Copyright 2022, Cain Publications, Inc.

Warren Buffet said, “Be fearful when others are greedy, and be greedy when others are fearful.” In 2008, with other people’s fear in abundance, he bought $5 billion in “perpetual preferred shares in Goldman Sachs” that paid him 10 percent interest and had the option to buy additional Goldman Sachs shares. Goldman had the option to buy them back at a 10 percent premium, which they did.

He bought $3 billion in “perpetual preferred stock” of General Electric with an interest rate of 10 percent that GE could redeem in three years at a 10 percent premium. Likewise with shares in Swiss Re and Dow Chemical, both of which needed cash to get through the credit crisis. Buffet made billions of dollars for himself.

Jamie Dimon, CEO of JP Morgan who today expectantly predicts an “economic hurricane,” during the 2008 recession acquired Bear Stearns and Washington Mutual, both of which had been brought to their knees because of their betting on US housing. They bought Bear Stearns for $10 a share, about 15 percent of its value in early March 2008.  In September he scarfed up Washington Mutual at a price that was a fraction of its value earlier that year. Shares of JP Morgan’s value, because of this and other deals, tripled in 10 years, making shareholders and Dimon even richer.

Carl Icahn, who became famous for buying TWA and selling it for parts in 1988, remarked “Some people get rich studying artificial intelligence. Me, I make money studying natural stupidity.”  During the credit crisis, he bought the under-construction Fontainebleau in Las Vegas for about $155 million, around 4 percent of the cost to build the property, and sold the unfinished property for $600 million in 2017 earning him four times his original investment.

Rich guys love recessions. They make money because they knew opportunities when they saw them and could afford them, but mostly because they are rich. Rich guys have the cash to make more money where ordinary people don’t.  You can’t get rich during a recession but you can get richer. You need lots of convertible assets to take advantage of the “blood in the streets,” something the vast majority of regular folks don’t have. 

It takes cash, but that cash can come in the form of net worth from assets that are already cash or can be turned into cash either by selling or borrowing against them.

Income alone doesn’t make a person rich. Some people have high incomes but low net worths because they blow every penny they earn; witness professional athletes who, never having had so much money in their lives, spend it all on expensive cars, parties, luxurious houses, and jewelry and end up in bankruptcy. 

The incomes of the top 5 percent of earners aren’t so bad, with an average of $342,987 a year in 2020, but that doesn’t go far enough to take advantage of lucrative recession opportunities.  That income can get eaten up with mind-numbing house and car payments, putting kids through Ivy League schools, country-club memberships, donating huge sums to charity so they look good, and taking expensive vacations.

Penny Phillips, president and co-founder of Journey Strategic Wealth, said “A lot of people who are wealthy in this country are wealthy not because of income, but because they own assets, they have investments that appreciated, real estate or otherwise.”

Some people have high net worths but “low” income. They use their assets to buy other assets at bargain-basement prices. It doesn’t matter how much you earn but rather how much net worth you have and can convert into dollars to increase your net worth.

Who are those rich people who have the resources to become richer during a recession?  A Schwab study in 2021 said a net worth of $1.9 million qualifies a person as wealthy, down from the $2.6 million the 2020 study found. The average net worth of US households, though, comes in at less than half that. But that doesn’t tell the whole story. How much of that net worth can be used to take advantage of deals engendered by a recession? It doesn’t seem as if a little less than $2 million in assets would do that. At that level, they might have more fear than greed, afraid that they could lose it all. Still, $1.9 million looks to be a good starting point.

For the exceptionally wealthy, such as Warren Buffet, Carl Icahn, and Jamie Dimon, a billion here and a billion there doesn’t affect them. But a thousand here and a thousand there for regular people can mean the rent doesn’t get paid. The wealthy can be patient because they don’t depend on cash to pay their bills and keep the wolf from the door. As in the examples above, the profits on their investments came after at least a couple of years and often longer. They could afford to be patient.

For us fearful normal people, it seems that we save to not lose money rather than to get ahead. Socked away for retirement, we dare not risk our 401ks and SEPs. The key point is that the rich, those with assets, always think in terms of how to make more money. The rest of us think about how not to lose it.

Most people can’t take advantage of recession opportunities. And even if they have enough money to invest, it won’t help much since you have to already be rich in order to get richer.

Can ordinary folks love recessions? As Buffet, Dimon, and Icahn attest, they are filled with opportunities, less so for the not-so-rich, and fraught with peril for the poor living paycheck to paycheck. The rich hold a distinct advantage, other than just being rich; they have people whose job it is to study investment opportunities, entire staffs who do nothing but look out for their bosses’ interests.  The “experts” ordinary, not-so-rich people have to rely on are often not expert at all but salespeople who get a commission on the investments they sell. How, then, can we know if any investment we examine is worth spending our money on? It could be pure luck.

We need to make sure it’s not our “blood in the streets,” that our fear doesn’t lead to someone else’s greed, and that we don’t represent Carl Icahn’s “natural stupidity.” We need to be on the lookout for solid opportunities that arise in abundance during a recession and that we can bravely, but with careful examination, take advantage of.

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Seattle Loses More than 11,000 Units in a Year

How does a city manage to lose 11,521 rental units in a year? When you look at the city of Seattle, you understand how. The latest issue of Current, the publication of the Rental Housing Association of Washington suggests it is because of the “City Council’s repeated passage of ordinances that further increase the costs, risks, and onerous burdens on housing providers.” Typically, Current reports, these homes “become owner occupied rather than continuing as a rental.”

In case you haven’t heard about them, here are some of the onerous regulations instituted by the Seattle City Council.  Just three of them are those passed in June 2021, the school year eviction ban, which prohibits evictions during the school year; a prohibition of evictions for COVID debt; and mandatory lease renewal that must be offered 60 to 90 days before the lease expires. In addition, they cap move-in fees, pet deposits, and security deposits regardless of the qualifications of the applicant. They have a rental registration and inspection law and a requirement to rent to the “first qualified applicant.”

There’s more, in fact far more, that’s too much to list here. Suffice it to say that it raises the costs of owning and managing rental properties and makes it questionable whether a rental owner can even turn a profit on his or her investment.

The usual suspects think you can do just one thing. How ignorant and arrogant can you be? The effect has been the loss of rental housing in a city that already finds itself with a lack of rental housing, both affordable and market rate.

For more than 20 years, I have advised rental owners to sell their rental properties to owner-occupants in areas where government makes investing in real estate unprofitable and more difficult than in areas that welcome rental investment. Now Seattle rental owners seem to have had enough, and are getting the idea, and bailing out of the Seattle rental market. You have to wonder how their City Council will react. Figure, considering their past behavior, it will be more of the same driving more of “those evil landlords” to cities that welcome their business.

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As the Economy’s Wheels Wobble, Economists Speak Gleefully About How Great Everything Is

By Robert L. Cain, Copyright 2022 Cain Publications, Inc.

Retail sales beat inflation for the fourth straight month the Commerce Department reported in April. The gleeful report is wishing thinking at best, misleads at worse and misinforms at worst. Sure retail sales are higher than last year, but why they are makes for a worrisome picture. For example, Walmart reported that customers favor lower-cost store brands of lunch meat over the higher-priced national brands and buy half-gallons of milk rather than full gallons. Kohl’s department store reported its customers buy less on each shopping trip.

Other factors eat into company profits; a big one is that they have too much stuff going unsold. With supply chain issues apparently over and companies receiving goods “from overseas earlier than expected,” companies such as Costco, have 26 percent more inventory than a year ago, Gap 34 percent more, Walmart 32 percent more. Target 43 percent, Best Buy 9 percent more, and Macy’s 34 percent more. “Holding excess merchandise proves expensive as warehousing costs rise,” reported a May 27 Reuters article. And as they dump the merchandise, it cuts into profits on everything they sell.

The result: several retailers, including America’s largest retailer Walmart, lowered their full-year earnings forecasts blaming high inflation, ignoring the cost of excess merchandise sitting in warehouses. Reuters reported May 26 that “some economists believe the erosion of profits and falling share prices could force companies to pause hiring or start laying off workers.” The wheels haven’t fallen off yet, but their wobble makes for troubling news.

While companies’ wheels wobble, problems exacerbate the way consumers buy. People pay for this higher-than-last-year sales with credit cards because they don’t have the cash. Forty-nine percent of consumers depend on credit cards for essential living expenses. Getting worse, the Federal Reserve Bank of New York reported that credit card balances are $71 billion higher than the first quarter of 2021.  Household debt, they also reported, increased $266 billion or 1.7 percent above the first quarter of 2021. Non-housing balances increased by $1.7 billion.

The pain doesn’t fall equally across all economic groups. Sub-prime borrowers suffer most. Many households “are forced to choose between paying for necessities and paying a monthly loan,” the Wall Street Journal reported. In fact, almost half, 49 percent, depend on credit cards to cover essential living expenses with 57 percent having missed at least one credit card payment; almost one in three, 32 percent, used the unpaid credit card debt for food and groceries.

Experian posits that sub-prime borrowers, defined as those with a FICO score of 669 or lower, amount to 34.8 percent, about 90 million adults.

But Wells Fargo CEO Charlie Schaff said “We are still in the best credit environment we have ever seen in our lives.” The best credit environment, huh? Equifax reports that about 11 percent, more than one in 10, credit cards owned by sub-prime consumers were at least 60 day behind in their payments in March compared to 9.8 percent in 2021. Plus, car loan and lease delinquencies set a new record in February with 8.8 percent at least 60 days delinquent.

Fair Isaac reports that “Americans have significantly increased the amount of credit they have taken this year.” Capital One said that in the first quarter credit card delinquency rates were more than 30 days higher than in 2021. And the gloom goes on, except with the credit issuers, who call it “the best credit environment” they have seen.

That will work until the chickens come home to roost. With inflation rising faster than it has in 40-odd years, it’s only a matter of time before over one-third of the population, 90 million-odd adults, can’t pay their bills anymore.

A University of Michigan study reported by ABC News May 22, 2022 found that consumer sentiment dropped nearly 30 percent in the past year. Their spending outruns inflation. Economists at the University of Michigan say there has been a “historic disconnect’ between sentiment and actual consumer behavior. That connection may be re-established shortly when credit cards begin getting declined and inflation surpasses income even more.

It’s already started. Target’s CEO Brian Cornell said the chain “did not expect to see the dramatic shift” in spending away from TVs, appliances, and patio furniture. Instead people are spending money on restaurant gift cards and items reflecting people’s desire to get out and spend.

Some of it has to do with pandemic fatigue. For two years, people have been locked down and masked up afraid to venture out into the world and engage in normal activities. Now they’re maxing out their credit cards to get even. It will go on until it can’t anymore.

A false security prevails with wages rising some 6 percent in April. That looks impressive but lags behind inflation.  The national saving rate has dropped about 6 percent to below pre-pandemic levels and household debt rising 8.2 percent in the first three months of 2022 compared to the previous year because of increased use of credit cards, the biggest increase since early 2008 in the midst of the recession. Even so, economists looking through rose-colored glasses say debt hasn’t reached “problematic levels.” We still have some $2 trillion dollars to suck out of savings before everything collapses.

It falls hardest on some demographics with 61 percent of Gen Zers and 53 percent of Millennials having to use credit cards for living expenses, while only 26 percent of their parents’ generation have to.

Employers can’t keep raising wages to keep up with inflation without pricing themselves out of the market while having to dump costly excess inventory. Lacking significant increases in their incomes, which employers can’t realistically provide, employees can’t keep charging everything and skipping credit card payments and still be expected to be able to pay the rent, make the car payments, and buy food.  In spite of the rosy reports from banks and economists, danger lies patiently in wait, ready to knock the wheels off the economy.

Written for Zip Reports where they do employment and rental screening.

Contact Robert L. Cain at bob@cainpublications.com

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Pitfalls and Promise: Alternative Financing

By Robert L. Cain, Copyright 2022, Cain Publications, Inc.

“There’s a sucker born every minute,” PT Barnum didn’t say it, and we might be suckers for believing that he did say it. Ryo Mac wrote, “It seems that everyone believes things a little too eagerly, especially if they want to believe it.”  It was likely a banker named David Hannum from Syracuse, New York who actually said it.

The fact that it most likely came from the mouth of a banker provides us an entirely new slant on suckers considering that financial “experts” fool people far more often and more destructively than any circus impresario ever could. 

Some people seem immune from suckerdom. When they try something, they think it through to avoid potential problems. They think critically. People who will fall for about anything lack critical thinking ability, lack financial savvy, lack self-control, and lack the ability to see consequences and alternatives. A black cloud follows them around ready to rain on them every time they try to do anything to help themselves.

People who lack critical thinking often intone the mantra “it’s not fair,” but reflects the fact that they make little or no effort or ability to counteract unfairness. They blame bad luck rather than their own bad decisions and lack of common sense.

One of the biggest financial hits can come when buying property. The Pew Charitable Trusts studied alternative financing, one way suckers can get fooled, and reported that one in five people have at some time used alternative financing and one in fifteen, about 7 million US adults, are using it as you read this. Alternative financing includes land sale contracts, lease-purchase agreements, personal property loans, and seller-financed mortgages. Alternative financing can be an excellent way to finance property. But financial peril lurks for the unwary.

Science News explained in its August 24, 2018, issue. “Nearly a third of young adults in a recent study were found to be ‘financially precarious’ because they had poor financial literacy and lacked money management skills and income stability.” The dream of homeownership is just that for many of them until the opportunity arises for them to buy a property using financing other than from a bank or mortgage lender.

Alternative financing may be their only chance ever to buy a home. Their credit is in the cellar, they owe thousands in credit card debt, they have financed cars beyond their abilities to pay, and get trapped in low-paying jobs. Eluding them are the toys and trinkets of people who have college degrees, well-paying jobs, and critical thinking ability. “It’s not fair those people have them and I don’t,” they say.  Life isn’t fair, but putting oneself in crushing debt won’t make it fairer. What will give them a leg up is growing the ability to think critically, to be able to say “what if” to protect themselves the same way the people who don’t get fooled do.

It may simply be beyond their capabilities to spot a bad deal. They “aren’t good at math,” they believe experts, they get their information from TV news, which tends to reinforce the “not fair” scenarios, and they tend to believe people who, they believe, are smarter than they are. Chances are they aren’t any smarter, just more practiced at the art of deception. The fooled can’t afford or don’t even think to use a lawyer to look at the contract.

Most of the time nothing untoward happens using alternative financing to buy a home. But sometimes it does and usually for the same reason: they don’t read and understand well. The legalese is beyond their reading capabilities and thus the ramifications of agreements they sign. They may believe the people who drew up the contract who tell them what it all means. A vicious circle, they have poor credit, low-paying jobs, lack of financial education, and poor reading and math skills. Bad guys put their feet on their desks offering to “make them a deal.” The suckers born every minute.

They may be stuck buying low-end properties using alternative financing because it’s not worth it for conventional lenders to loan less than a specific amount, maybe $125,000, or on properties with habitability issues such as utility connections, unfinished kitchens and bathrooms, and manufactured homes sitting on rented land.

How do alternative financing contracts backfire? A few get caught in a trap written into the contract of sale that puts them at a disadvantage. For example, the law varying by state, bank-loaned mortgages carry legal requirements. Not so with alternative financing mortgages. Strict legal procedures require that bank-loaned mortgage require some four months to foreclose if the buyer can’t or doesn’t pay. The lender of a seller-financed property might foreclose in a month. Buyer doesn’t pay, seller forecloses and boots the buyer out, who loses everything he or she put into the property, all the principal and interest payments, all the improvements, and the down payment. But a buyer would also lose all that with a bank-financed mortgage. It just takes longer and the buyer may be able to sell the property before the sheriff comes to evict. With alternative financing, good luck. When the 30 days are up, the buyer is out, losing all rights to the property.

Manufactured housing presents another quandary. If the house is in a park and the manufactured housing owner rents the space, no conventional lender will touch it and the buyer must get a personal property loan. Conventional mortgage lenders loan only on fee simple property, that is, property where the buyer also owns the land where the housing sits. Say the park owner sells and the new owner triples the space rent. The buyer can’t pay the higher rent amount, can’t afford to move the house because of the major expense, find another place to put it, and loses everything just as with seller financing. Plus, the personal property loan remains owing. The park owner might offer to pay off the loan for the current balance owed, or the manufactured home buyer might simply default, destroying any credit he or she might have had.

Do alternative financing buyers know any of this? Do they think, as the lender promises, this is standard procedure? There is no such thing as “standard procedure” in a real estate contract.

With little or no financial savvy and critical thinking ability, they simply don’t know how the world works. The result is they are in constant financial trouble. They may be resentful of anyone doing better than they are. They often have collections and bankruptcies.

Written for Zip Reports where they do employment and rental screening.

Contact Robert L. Cain at bob@cainpublications.com

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Gig Workers and Applicant Screening

By Robert L. Cain, Copyright 2022, Cain Publications, Inc.

Fraught with possibilities for fraud is information on the rental application of a gig worker, especially one type of gig worker. With their inability to provide much credible information, it can be difficult for us to be confident about their qualifications. Many exist in a kind of an employment shadow world on the edge of society. But that world grows ever larger Many, possibly the majority, of them are renters.

Zippia Research reports that this segment of the economy grew by 33 percent in 2020, with some 59 million American adults having done gig work that year, amounting to at least 36 percent of the population. According to the research by Zippia Research, “16 percent of US adults earned money through an online gig platform at some point in their lives,” with 9 percent earning gig income in 2020. By 2023, figure 52 percent of American workers will have worked as gig workers.

They contributed $1.21 trillion to the economy in 2020, around 5.7 percent of the US GDP. If overall statistics apply to them, more than 40 percent of them are renters. That’s being conservative because becoming a homeowner with gig income verification presents problems that wage workers and even business owners don’t have. We’ll look at those in a minute.

Who are gig workers? The definition has expanded to include people whom we wouldn’t have thought of as gig workers in the past.  The definition includes of course Uber drivers, Door Dash drivers, etc., but now thrown in the mix are the people we normally think of as freelancers and contract workers such as writers, marketers, engineers, and professional photographers, people legitimately in business with that profession, and not just looking for side income. They present more uncertainty when verifying their rental qualifications.

Many people, especially with inflation running rampant, or wanting to save money maybe to buy a house, take gig jobs to work toward financial goals. They have verifiable work income with the gig money as an added attraction. A little more difficult to screen, they do have verifiable income.

Then there is the shadow world of gig workers whose primary income comes from Uber driving and delivering Door Dash food. It gets tougher to ensure that such an applicant is qualified and has told the truth on about income on an application. Add to that only four of the 10 verification steps might even work for screening them and only one offers even remotely dependable verification.

With a normal rental application, we can look at 10 items as evidence of adequate income.  The applicant may show up with W-2s, 1099s, pay stubs, a letter from an employer, or even an unemployment statement or workers’ comp statement. What a gig worker might have are tax returns, 1099s, a bank statement, and a Social Security statement, the only document that’s difficult to forge.

Since they are not employees, there’s no employer to supply paystubs. The gig worker to keeps track of his or her own income, taxes, and expenses. If a gig worker presents a paystub as evidence of income, look at that as a red flag. A paystub may well have been forged and could fool the unwary landlord.  If a gig worker presents a paystub and says he or she gets one from his “employer,” ask for an explanation from the applicant, but it will in most cases lack credibility. Chances are, we reject them out of hand. Even so, the company the gig worker contracts with may send a monthly statement, something easily forged, as well.

The three items they can present that could work to prove their worthiness to rent are a tax return, 1099s, and a bank statement. Each of those is so easy to forge they are unreliable for evidence. Here’s where we have to adopt the mantra, “doubt everything” and verify everything meticulously.

How then to verify the income entries on a rental application for the three types of gig workers? The first one, the workers who work as freelancers, contractors, artists, and such and whose work provides them with a livable income, is more reliable.  They keep books, have business bank accounts, can provide tax returns, and can show 1099s to show who paid them and how much. They also have business cards and maybe even brochures. Here we can confidently take their income statement as verifiable.  Just check landlord references, look up their business website, and call people they do business with.

The second category of gig worker is just about as easy. These folks have jobs or maybe businesses with verifiable income and just use gig income as extra money, say saving for a down payment. They have W2s, paystubs, and an employer with whom we can verify the information on the rental application. The gig income is a plus and needs to be verified thoroughly only if that income is required for them to income-qualify to rent a property.

The third one is people whose primary income is as an Uber, Door Dash driver, or something similar. Whatever evidence of income they state can only be considered risky.  The rule of thumb with all rental applications is that the person must prove to the landlord’s satisfaction that the application is honest and accurate. It’s not up to us to show it’s false.

First, as with all applicants, they must prove who they are with a driver’s license, passport, or some other form of government identification that can’t be forged. And as with all applicants, they must prove that what they claim as income is true. With it so easy to create phony documents and with so many companies, such as realcheckstubs.com, offering to provide official-looking documents that say whatever their customers want them to say, we need to question every item on the rental application.  Unfortunately, we don’t have any foolproof way to do that because the forgeries can look so real. Sure, look at bank statements, 1099s, and profit and loss statements. But those are so easily forged that we need to look at them with skepticism.  If inclined to rent to the applicant, landlord and personal references that we can verify as accurate are our most efficacious and possibly only line of defense.

With the number of gig workers growing apace, and considering most likely most of them are renters, they will be knocking on our doors trying to get us to rent to them. Should we?

Written for Zip Reports where they do employment and rental screening.

Contact Robert L. Cain at bob@cainpublications.com

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Amy Got Rejected and Andy Got Accepted: the Dangers of Sloppy Applicant Screening

By Robert L. Cain, Copyright 2022 Cain Publications, Inc.

Amy got rejected. The screener took one look at her Facebook page and said “no way.” Her page displayed a video of a wild party complete with trashing an apartment, people passed out, noise complaints, and police coming. Trouble was, Amy wasn’t even at that party and only knew a couple of people who were. She was well-known for being in bed by 10 every night, only going to parties at or from her work as a legal secretary, and saving money religiously. What happened was one of her “friends” had posted the video on Amy’s page as a joke for all the world to see. Some joke considering how it affected Amy’s reputation.

If the screener had looked farther, he would have seen that Amy was as close to an ideal tenant as you can get. Look in the dictionary for the definition of “ideal tenant” and Amy’s picture would be there; her apartment always neat and tidy, her rent always paid the first of the month on the dot, her behavior always respectful and friendly. Did that landlord ever miss out.

Andy got accepted. The screener took one look at his Facebook page and said “Wow! What a great-looking applicant!” and so only glanced at the information on his application. Andy’s Facebook page showed him hard at work at his job (more about that in a minute), him hiking in nature, and him passing out food to the homeless at Thanksgiving. Trouble was, every bit of that was completely made up. Andy had created his Facebook page to cover up that he far more closely matched Amy’s page.

The danger of relying on social media for a decision about anyone’s character is that it’s so easily doctored that nothing warrants its acceptance. To ensure everything is factual, verify and double-check it.

You see, Andy applied as Andrew Jerald Mason and had every kind of documentation anyone could ever ask for to prove his outstanding qualities. It was all fake. He had created or altered the documents he presented so that any landlord who would turn him down would simply lack common sense.  His new identity had excellent credit, work, and landlord references. Andy was thorough. Every document he looked too almost good to be true (until examined carefully). The landlord handed him the lease to sign and the keys.

Two months later the party boy found himself back on the street looking for a new landlord to victimize. He had lived Amy’s supposed Facebook party a couple of times a week. The cost of putting the apartment back into even close to rental condition figured in the thousands of dollars. Then, when the landlord went after Andy for payment of the damages, Andy was nowhere to be found. He didn’t exist anywhere.

Nothing beats effective applicant screening for protecting your property and your bottom line. But applicant screening is replete with holes and pitfalls to trip up and damage a rental owner’s property and bank account. How can you do it safely and effectively? Effectively means ensuring that your applicant is worth of renting from you. Safely means you know the data you use for your decision is accurate. Rely on questionable data and you could be in trouble. What you think is effective screening may not be at all. You might miss out on an excellent applicant and end up with Andy.

In Amy’s case, the screener was nothing less than sloppy. Social media is unreliable at best since it can easily be hacked. Had the screener had the good sense to ignore the Facebook post as unreliable and gone on to screen as he should, he would have recommended that the landlord welcome Amy with open arms as a valuable tenant.

With Andy’s application, the screener was nothing less than sloppy. He fell for documentation easily created online by anyone with halfway decent computer knowledge and by using companies whose business it is to create documentation that makes someone appear to be the ideal applicant. Andy used several ways to create a false identity.

He found a Social Security report for someone with a birthdate and other statistics closely approximating his own and did a good job of changing the name to match his with the typeface and spacing almost exactly like that on the Social Security report. If the screener had looked closely, he would have seen that the report wasn’t as neat and tidy as a document should look. The typeface differed just slightly, but noticeably, and the spacing was just a little off from a legitimate Social report.

Andy bought phony pay stubs and bank statements to show he had more than enough income and savings from a company that phonies up documentation.  The company Andy wrote that he worked for existed, but Andy was only part-time and had worked there for only a few months, not the five years he claimed. The screener never checked to see if Andy actually earned the income he claimed or that he had a bank account at the bank where his supposed money was stashed. Andy had bought official-looking templates from companies that sell such things including a driver’s license, Social Security Card, birth certificate, and Bachelor’s Degree from Stanford University.

Andy had arranged with friends to act as fake references, to answer the phone and pretend to be employers, former landlords, and people who would say they were confident that Andy was a model citizen. If the screener had checked the phone numbers against the supposed companies and landlords, he would have spotted the fraud immediately.

The screener took the credit report Andy supplied at face value rather than cross-checking it with a credit reporting company which would have immediately spotted the inconsistency. Of course, Andy would most likely have had an explanation for this “obvious error” that might have even sounded good. But no matter how good it looks, doubt everything and verify everything.

Andy had numerous evictions and former landlords eager to tell anyone who would listen about their unpleasant experiences with Andy.

Amy got rejected and Andy got accepted and two landlords paid the price for sloppy applicant screening. To ensure quality tenants, treat social media as untrustworthy and verify every item on a rental application.

No neither Amy nor Andy is real, but they may show up under different names as applicants for your rental property.

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They Won’t Move Out!

By Robert L. Cain, Copyright 2022, Cain Publications, Inc.

We have had problems with my tenants’ refusal/difficulty vacating the rental unit after the lease term has expired. We have told them well in advance that we will not be renewing the lease, but they still will not leave at the designated time. HELP! What do I do to get them out? At this point, isn’t this considered trespassing? How do I get them out? Am I able to lock them out of the dwelling? Thank you for your advice on this matter, Jane Jefferies

Every once in a while landlords have to deal with people who seem to be unable to rent the U-Haul and get their stuff somewhere besides their ex-landlord’s property.  Usually, those who are not wanted have the good sense and grace to move out.  Apparently, these folks have neither good sense nor grace.  You are in a position to make their renting from another landlord extremely difficult by providing an accurate reference when a prospective landlord calls you for a reference. This offense ranks right up there with a midnight move-out owing two months’ rent. 

In the meantime, however, to protect yourself from the court system that consistently comes down on the side of tenants, take some specific steps. It doesn’t matter if the tenants are good, bad, or somewhere in the middle; courts in many places go out of their way to protect tenants from those “evil, greedy, uncaring landlords.”

Those tenants are trespassing, but you would have no luck with the police having them removed since police don’t want to get involved in a “civil matter.”  That is in spite of the fact that these people are in the property stealing the rental because you can’t rent it while they are occupying it. Besides, the police officers would have to write long reports about what happened, something that, trust me, they hate to do. 

You will have to file an eviction against these holdover tenants. One step that might persuade these squatters to move immediately is that you inform them that you are going to file the eviction at the courthouse the next day if they have not vacated.  This is a slam-dunk eviction since they had been notified, presumably in writing, that they were to vacate at the end of the lease.  Big warning! If you did not notify them in writing, you will have to begin the process all over again. Otherwise, the judge would throw the case out of court since you have no proof that you told them you were terminating their tenancy. Check the procedure for starting the procedure in writing below.

Do not, under any circumstances, ever, even think about locking them out until you have the judge’s order in hand evicting them and a deputy sheriff or constable to serve the papers.  Locking them out is called constructive eviction and is illegal in every state.  Likewise, don’t take the front door off, turn off the heat or electricity.  Anything you would do to make living in the property difficult or impossible is considered constructive eviction and would result in a judge ruling letting your tenants live rent-free for several months.

If your “notice” that you would not be renewing their lease and they were going to have to move was oral, it is not valid.  Here’s what you have to do.

Send a notice in writing, according to the laws specific to Chicago, where your property is.  Laws are different in every state and in some cities, so do not under any circumstances use a form you find at the office supply store.  Those forms are generic and dangerous, and probably comply with few state laws or city ordinances and almost certainly not the ones where your property is.  Get a form from your local apartment or rental owners association, or from an experienced real estate attorney. If you use the wrong form, your tenants could end up staying rent-free for three months.

Make sure you give adequate notice, whatever that is in your area.  Most state laws are for 30 days, but check to make sure.  Also, make sure the procedure for serving the notice.  Can you mail it Certified Mail?  Can you send it First Class Mail?  Must it be hand delivered?  Must it be served by a process server?  If you don’t do it right, once again your tenants get to live rent-free for a couple or three months.

Finally, do not accept any rent from these tenants during this debacle.  If you accept rent from them, you have confirmed their tenancy and must begin the process all over again. 

These tenants will get out soon as long as you do everything exactly correctly. As I said before, the courts are there to protect tenants, not landlords.  With each step, you take to get rid of these undesirables, keep that in mind.  Your final reward will be when you get a call from another landlord asking for a reference.

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Americans Are Saving Money? Well, Some of Them, But Others Have No Money to Save

By Robert L. Cain, Copyright 2022 Cain Publications, Inc.

Americans are “hoarding money,” reported the Wall Street Journal January 13. “Worried about their health, their jobs and the prospect of a deep recession,” they socked away money and “amassed record savings levels.” I’m not certain what Americans the Journal was describing, but it certainly was not the average person.

Meet Joe. Joe couldn’t be more average. He and Joan, his wife, are 38 years old and earn the median $51,383.18 a year net in salaries. Also right at the average, they spend $61, 224 a year. Trouble is, with expenses exceeding their incomes every month, they go farther in the hole, scrimping and running up their credit card debt.  They would love to save money, but can’t figure out how. They hope a big tax refund will help pull them out of debt. Forget about saving anything. They just want to get somewhere approaching debt-free.

During COVID, they got the opportunity to spend less with Joe working from home a lot, not having to buy so much gas, and eating lunch at home. Beginning February 2020, Americans’ savings rate jumped over 30 percent. COVID was to blame, as people curbed spending and stockpiled cash but left Joe out of the equation. Some of the savings went to retirement funds which now have an average balance of $255,200, not enough to retire on but a good start if you’re 40. Joe just wishes he could save into his retirement fund more than his company pays.

Average Joe has company in his lack of savings. Statista reports that 81 percent of people have less than $5,000 in savings. Mostly that 30 percent increase in savings was from people earning more than the average person. From people with higher than average incomes or lower expenses in 1990, gross private savings in the US went over $1 trillion for the first time reaching $1.14  trillion. It reached $4.72 trillion in 2019, far more than the rate of inflation which would have amounted to $2.13 trillion.

Joe lands smack dab in the middle of the average 48.5 percent with a high school diploma and a couple of years of college. He dropped out to earn money.  During his short college career, he accumulated student loan debt amounting to almost $39,000, just about average and that he still pays on. He has more student loan debt than credit card debt, also just about average. No wonder Joe can’t save a dime.

The savings aren’t spread evenly. The average American household has saved $41,700, a misleading number. A more accurate and telling measure, the median savings are only $5,300 which means half of the people have $5,300 or less in savings. Joe joins the 55 percent of the population that couldn’t survive more than four months without income if he lost his job. He’d have to deplete his minuscule retirement fund to survive then find a way to pay the taxes on it.

One place Joe isn’t average is his credit score. The average FICO score, reports Experian, is 711. What with having to skip payments occasionally and worry that his car might be repossessed because of missed payments, declined credit cards because of missed credit card payments and that he might be evicted because of late rent payments, Joe’s credit score is 625. He teeters on the edge of insolvency every month. The stress and credit score are killing him.

Joe rents a house but the rent keeps going up and he has been late with the rent six times in the past year.  With the eviction moratorium over, he is afraid to open his mail from the property management company. It gets worse. Rents are increasing more than 30 percent in some cities making living too expensive for even ordinary people like Joe who have stable jobs and questionable credit. With the lack of available housing, landlords can be just about as restrictive as they want in their rental requirements. Joe needs to move and might be forced to get “creative” in the information he puts on his rental applications and the documents he presents.

He’s not alone. Snappt reports that 12.2 percent of rental applications contain fraudulent information.  Joe will have to resort to document fraud to even get a landlord to consider him. With his credit score at 625, he is competing with applicants with average or better scores. The house where Joe and his family live is a place he can be proud to live in. He won’t be so proud of where he ends up after he is forced to move. Worse yet, if the landlord discovers his fabrications, he’ll have to move again immediately for lying on his rental application.

Then there’s Joe’s job. He’s worked there for five years and his present home is a ten-minute drive to work. When he has to move, chances are the drive will be much farther and thus harder on his car. If the car breaks, Joe might not have the money to fix it considering that 44 percent of people find themselves unable to come up with even $400 in an emergency, reports debt.org.

Those who should know keep talking about how people are doing better than ever with savings growing and wages increasing. They talk about the pent-up demand for spending and the inflation that results partly from increased spending. Rarely mentioned are the “average” people stuck in the middle, just trying to get by and hoping nothing so much as an unexpected $400 bill shows up.

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Financial Disaster Looms with the End of Student Loan Forbearance and the End of the Child Tax Credit.

By Robert L. Cain, Copyright 2022 Cain Publications, Inc.

PROPERTY NEWS SERVICE

Financial disaster looms reports Susan Tampor in a Dec. 22, 2021 article in the Detroit Free Press. Two senators and  a representative in a Dec. 8 letter to President Joe Biden called it “alarming new information.”  Another senator, Joe Manchin, warned of “a big hole in financial safety.” And the Detroit Free Press in the same article also warned that “families face financial challenges .”

The result could be unpaid rent, wage garnishments, and auto repossessions by late Spring or early summer for the 36 million households that receive the child tax credit.  The double whammy comes from the end of student loan forbearance on May 1 and the loss of the child tax credit.

Here’s how it can end up a serious problem for the US economy.  The total hit could mean $837 a month for those who have both student loans they aren’t paying on now and the end of child tax credit.

Student loan payments average $393 a month. Some pay more and some less, but that’s the average.  Child tax credit means an average extra $444 monthly in the pockets of parents.  Both the student loan forbearance and the child tax credit were put into place as part of the CARES Act.  They both face deadlines with the result that families could end up in the hole every month.

With Student loan repayments with 41 million borrowers resuming May 1 and the child tax credit that ended Dec. 15, their canceling can throw a monkey wrench into the economy.

The bigger hit faces student loans in default.  CNBC reported on Oct. 8 that “because along with their wages and Social Security checks, those who’ve fallen behind on their education loans can have their annual tax refunds seized by the U.S. government. This can cause people to also miss out on the child tax credit and the earned income tax credit since those are usually paid out in tax refunds.” Those total some 9 million, that’s half, of the 18 million student loan borrowers, reports a March 24, 2020, Washington Post article.

Let’s look at how that could affect so many Americans. The Bureau of Labor Statistics reports that the median wages and salaries are $4247 a month. Subtract taxes withheld of an average $2988 per month, and net income lowers to $1267.  Many families have two incomes. That makes a net monthly income for the household of $2534. For the sake of this discussion, I doubled that, figuring it close enough to make the point. Rarely are both spouses earning the same amount with women often earning less.

Now we subtract outlays. Figure average transportation costs of $813 a month per the Bureau of Labor Statistics; that includes car payment, gas, maintenance, and insurance, plus a couple of lesser costs such as public transportation.  

The average student loan payment reports the US Department of Education in $393 a month.  If both adults have student loans, double that to $786. 

Thus we have $2534 less $813 less $786 leaving $1328. They still haven’t paid rent. The median monthly amounts to $1104. That leaves $224 a month for food and to take care of children.  That’s not to mention utilities, eating out, credit card payments. and such “necessities” as the cable bill.

It gets worse. Some $70 billion of back rent owed by 10 million people eagerly waits to result in evictions because tenants simply don’t have the money. Those rents accumulate and add interest making it even more difficult for those receiving the child tax credit and student loans in forbearance when they have to start paying them.

Add back in the average $444 for child tax credit and student loan forbearance and things look better. It bumps up the average income to $1061 a month, enough for food and maybe a dinner out, the electric bill, and clothes for the kids.

Who doesn’t get paid? The biggest expense is usually rent.  Depending on the landlord, paying the rent might be delayed for some time. The expression “understanding landlord” in the Bad Tenants’ Dictionary means one who isn’t too insistent on payment of rent.  An “unreasonable landlord,” meanwhile insists on timely rent payment. Thus, depending on which landlord they have, they can beg off paying rent or look for another bill to put off paying. Maybe the car payment, the Visa bill? No matter what, someone won’t get paid.

Will these dire circumstances all come about? Maybe, maybe not. If student loans get forgiven or forbearance extended again, and Congress passes an extension of the child tax credit, things will stay the way they are now, for a while at least, for families who depend on the child tax credit and owe student loans. Secretary of Education Miguel Cardona stated, “As we prepare for the return to repayment in May, we will continue to provide tools and supports to borrowers so they can enter into the repayment plan that is responsive to their financial situation, such as an income-driven repayment plan.” There’s no way to predict exactly what will happen.  But the result of student loans becoming payable again and of the child tax credit going away can result in numerous evictions, car repossessions, evictions, and employees unable to get to work.  We must prepare ourselves for the possible financial disaster.

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I Never Thought of That!

By Robert L. Cain, Copyright 2021 Cain Publications, Inc.

PROPERTY NEWS SERVICE

Smart and experienced investors plan thoroughly.  Because they have been doing it for so long and so successfully, they have a list, possibly just in their heads, of issues that can pop up with any property they might consider buying.  A search of the internet and the numerous books I have on the shelves in my office comes up with the usual advice about choosing a property.  They are all valid, excellent, and important factors to consider: Inspect the property carefully, check the rent rolls, look for hidden problems, and so forth.  But these experienced investors do even more.

The difference between that advice and what I’m going to discuss here has to do with what surrounds the property.  I’m going to deal with the monsters and assorted creepy critters lurking down the block, inside school district offices, and city hall waiting to pounce on and devour real estate investors.

These issues may be difficult to foresee, but are often discoverable with a little research and keeping up with local news. 

The drug house next door

Smart investors survey the neighborhoods around prospective properties.  That, of course, includes neighborhood crime statistics and the ownership and management of nearby properties.  Unfortunately, few of us have crystal balls that allow us to see where a neighborhood might go in a couple of years even though everything is fine now.

Then a nearby investor sells an apartment building, gets a new manager, or simply stops paying attention and, presto! in moves a drug dealer or two along with the druggy tenants eager to live close to their crystal meth supplier. 

A drug house can decimate a neighborhood.  And they can appear even in what seems to be the most stable of neighborhoods.

The disappearing school

Many cities suffer from declining public school enrollments, often not even for all the same reasons.  Smart investors carefully check out the school districts and the schools around their prospective investments.  After all, good schools draw parents who want their children to get a good education.  Most likely, that correlates with responsible parents who will likely be better parents than the parents who think of schools as someplace to babysit their children to get them out of their hair while they sit in the bar, smoke dope, and wait for their welfare checks.

School boards sometimes make bizarre decisions and close under-enrolled schools combining them with other schools.  Closing a school, especially a first-rate one, can also decimate a neighborhood.

The school morphs into disaster.

Principals and teachers transfer, or are transferred, to different schools every year.  Sometimes a principal who had created an exceptional school gets her just reward and earns a transfer to an under-performing school to work her magic there.  Often those principals take teachers with them, the best ones.  What replaces that principal and those teachers might make the old school less than desirable.

How about an entire school district?  Take, for example, the Clayton County, Georgia, school district that lost its accreditation in 2008.  An entire school district losing accreditation had happened only twice before in 40 years.  Think what that did to Clayton County rental properties.  They regained accreditation in May 2009, but the damage couldn’t be repaired.

A bad school, or school district, does a number on the neighborhood or even an entire county.

Local government engages in government thinking.

It might be a huge increase in property taxes for non-owner occupied properties, a sales tax on rents, rental inspections, or a new fee inflicted upon rental properties. No matter which, it affects the ability of a property to turn a profit.  Rents can only go up so far because they have to compete with properties just on the other side of the city limits that aren’t saddled with those extra costs.  That means investment real estate owners can’t make as much, or any, profit on their rental properties as the rents increase and the vacancy rate follow. 

Of course, then, with vacancies increasing and rent amounts dropping, the money the city anticipated receiving not only disappears but the net receipts decrease. Let the whining begin. But that’s what governments are good at: government thinking. You can’t do just one thing. Every action has consequences, many predictable.

Who would have even dreamt of such things happening?  But there may lurk even more unexpected and unpredictable events, ones I can’t think of now so bizarre and rare that they might happen only once or twice in a century.

Can we think of everything?  Obviously, we can’t.  Can we do something about unexpected events?  Usually. The most important thing to remember about rental property investing is to pay strict attention to everything that might affect property values.  After all, real estate investing is hands-on if it is to be successful.  Paying attention involves more than just scrupulous maintenance and consistent rent collection.  It requires watching out for those monsters and creepy critters waiting to negatively affect our investments.

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