Financial Verification is Broken, We Know How to Fix It

How are people screening tenants today?

If you’ve managed any kind of rental real estate then you have had to screen tenants to make sure they meet your rental criteria. Why do we screen them? For a wide variety of reasons, but most importantly to make sure they won’t cause trouble and that they will pay their rent. A typical screening process includes a credit score, background report, eviction check, and analysis of pay stubs. Not everybody collects bank statements, but they should.

Why you should collect bank statements

Having bank statements provides two very important data points that help you gauge the risk level of an applicant. Let’s face it. Life is unpredictable. People lose jobs, have medical emergencies, and get hit with surprise payments. No amount of screening can predict when these events will happen. As an investor, it’s your job to manage risk. You can mitigate that risk by collecting bank statements.

  1. Account balances – this data shows you how much of a financial cushion a tenant has, should a disaster strike. $5000 is a good emergency fund, but of course, the more the better. By ensuring that your applicant has a strong financial cushion you are setting both yourself and your tenant up for success.

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A Finret financial account report showing 12 months of account balance history. Note the healthy upwards trend that shows the tenant is saving money and $7,000 account balance that gives the tenant a safe financial cushion.

  1. Cashflow – this data tells you how much money a tenant is saving. You don’t have to see a detailed financial statement as that would be far too invasive — the account balances month to month are fine. What you want to see here is that the tenant has a steady cash flow trend. Any abnormalities should lead you to have a productive, legal conversation about their finances.For example, an agent in my office was screening an applicant with a mediocre credit score and requested bank statements. At the time, that person had a fairly low account balance which was strange because he had a good salary. After reviewing his bank statements he asked why there had been a recent, significant dip. There had also been one in December. The applicant proved that he owned investment property and that he had to pay taxes during those months, therefore his balance was lower than usual. The cashflow checked out, along with the credit and background checks so he got the green light to rent the property.

Why isn’t everybody collecting bank statements?

First and foremost, in the age of photoshop, it’s more than easy to fake a bank statement. Check out this one below, it took me less than 5 minutes to turn myself into a paper millionaire.

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Second, people aren’t doing it because it’s a hassle to ask a tenant to print out or screenshot 6-12 bank statements and then remove the account number.

Improved financial verification

How are we fixing the problem? We’re offering verified bank data that takes 10 seconds for the tenant to collect and 10 seconds for the property manager to understand. If you’re interested in learning more or joining our beta program where you can try this feature out for free, feel free to click here.

Please let us know what you think by commenting below or reaching out to support@finret.com

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