Property managers tighten up renter scrutiny in blazing market

The 197-unit Arbor Place Apartments near Fresno State have been sold. Photo via Apartments.com

Apartment owners and property managers are tightening criteria for renters in hopes the strongest tenants rise to the top. They’re also being more thorough amidst the eviction moratorium to ensure steady income.

Some apartments allow a cosigner if renters don’t have stellar credit or substantial income. But now with high demand, some apartment complexes are not allowing cosigners and tightening standards altogether.

Apartments are not required to allow co-signers for new renters in need of a cushion on their credit, said Robin Kane, senior vice president of The Mogharebi Group, a real estate brokerage specializing in multi-family properties. Tightening the application process to weed out weaker renters speaks to the strong demand for the rental market.

If renter demand is low, apartments will be more lenient. But in this busy season, checking credit on both renters and cosigners is a lot more work for apartment gatekeepers to shoulder. Some apartments are not allowing them, while others that allow them see that stronger, more qualified renters are beating out novice renters.

“It just complicates things,” Kane said, when apartment complexes have to check several rounds of credit. If more qualified renters come in not needing a cosigner, the apartments will take the stronger renter.

‘If you don’t have to, it’s a reflection of the fact that the rental market is so strong that the criteria has tightened up,” said Kane.

Jim Armstrong, owner of Armstrong Property Management in Visalia, said the company still allows cosigners.

“We haven’t changed our process because of the high demand and the number of applications we’re receiving,” Armstrong said.

Although they still allow for cosigners, the apartment still analyzes income, references and credit ratings. The strongest applicants win, and there are a lot of them.

“You get several good applications, and maybe we have five or more that are strong and any five of them would be qualified to rent. So we have to prioritize who’s the strongest and offer it to that person first,” Armstrong said.

Armstrong Property Management has several hundred units but specializes in residential and commercial properties. Many of its residential properties are single-family homes and four-plexes.

“I’ve been a broker for over 41 years, and I’ve never seen a market like this,” he said, remarking on the high rental rates.

The correction in the market has to come at some point, but it’s not showing signs of slowing down right now, he said.

Pre-Covid, the market was already showing signs of increased demand because inventory was low across the board. Greg Terzakis, senior vice president of California Apartment Association for the Central California region, said demand has been partly driven by work-from-home circumstances.

“During Covid it didn’t let up. If anything it got stronger from my point of view,” said Armstrong.

Many people are flocking from out of town for cheaper rents — or at least the Bay Area’s version of cheaper rents. But there aren’t enough new builds to curb demand. Terzakis said there is up to an 18-month lag time to build new properties, particularly multifamily. Pair the lag time with difficulty finding skilled labor and exponentially high material costs, and it’s a difficult situation, he said.

“So what you’re seeing is this perfect storm of increased demand, at a time where it’s hard to fulfill that demand with supply and a 12 to 18-month lag between getting a project approved and finishing a project,” Terzakis said.

At some point supply should catch up with demand, he said, but as long as the eviction moratorium remains in place in California, managers and rental housing providers are being very careful to ensure that their renters are qualified.

The statewide eviction moratorium currently runs through Sept. 30. The federal moratorium expired on July 31, but the Biden Administration has instituted another ban for counties with substantial community spread of Covid-19. The move is expected to face legal challenges.

The situation is especially precarious for mom-and-pop owners with a few rental houses to manage.

“I don’t think they want to be in a situation where someone moves in, can’t pay rent, and they’re on the hook for the mortgage and the property taxes and the insurance and the maintenance with no money coming in,” Terzakis said.

Demand is exploding across the country, he said, especially outside of large metropolitan areas. It’s why places like Sacramento, Modesto and Fresno have become hot markets for renting. These markets have an influx of renters from the Silicon Valley.

“With Covid shutting down so many businesses, particularly technology jobs that can be done remotely, you’ve had a lot of people move inland because it’s so much less expensive,” Terzakis said.

Many people living on unemployment checks found it unreasonable to pay more money for overhead living expenses when they had a finite amount of money, he said. And while people in Fresno and the Central Valley see the rent as expensive, people from the Bay Area are paying three times less when migrating to the Valley.

But a lot of unknowns remain because of Covid-19 circulation increasing via the delta variant.

The California Apartment Association has been advocating for building for housing of all kinds. Terzakis said the Central Valley is not anywhere close to where it needs to be in order to keep up with demand.

“The one thing I’ve learned in the last year and a half is try not to predict what tomorrow’s going to be,” Terzakis said.

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