In 2014 there were over 3.4 million eviction cases in the apartment industry. What’s more, if you manage class B/C properties delinquency rates of 10 – 30% are quite common. While the direct implications of this situation are obvious, what’s often overlooked are the indirect and opportunity costs associated with how you manage the process.

The traditional approach multifamily operators take for delinquency management is inconsistent, inefficient and opaque. The result is that operators expose themselves to far greater risks (and to make matters worse, these risks are typically hidden), it increases costs, creates blind spots and negatively impacts the overall operation of the property manager’s asset.

What’s Wrong with Delinquency Management

While nearly every operator – or even property – takes a slightly different approach to how they manage late rent payments, there are 3 commonalities that represent the core problem.

  • The process is highly variant. It creates far greater disruption than necessary. This variance not only wreaks havoc on the operation and introduces risk, but it also creates inconsistent resident expectations, which typically worsens the problem.
  • The process is opaque. Think about how quickly you can assess virtually every aspect of your property at a click’s notice. Want insights on demand for a particular property? No problem, we can have that right away – click. Want to see which lead sources are contributing best to property performance? Sure – click. Credit check for a new resident? Instantaneously – click. Want insights into your delinquent rent exposure and where things are in the process? Uhm…that’s going to take some time. Need to talk with the lawyers, and even then you can’t be sure that what you’re seeing is accurate.
  • The process is arcane. Because every jurisdiction has unique requirements you’re typically forced to work with a variety of service providers who vary in sophistication, capabilities and approach. This means that properties, sometimes even located in the same state, are forced to manage significantly differing complexities in managing the overall process.
  • This means that the likelihood of details falling through the cracks, and mistakes being made can increase exponentially. Within the last six months, we’ve seen, firsthand, the consequences of this approach. Specifically,

  • We frequently see accounts receivables (A/R) crises emerge. The way many operators roll up financials for reporting can leave exposure to rent delinquencies hidden until A/R balloons.
  • In another instance, a community manager was actually embezzling funds, hiding it as delinquent rent.
  • Recently two property managers were fined more than one-half a million dollars for mishandling the eviction process of military families.
  • We could go on. All of these cases represent lost revenue, higher costs and greater disruption. This could have all been prevented with a modern approach to delinquency management.

    A Modern Approach

    Solving the delinquency management process requires the integration of three core components:

    The effective use of technology to streamline the process and create transparency.
    A clearly defined, disciplined and consistent system that eliminates emotion and inconsistency when dealing with delinquencies.
    The utilization of specialists with deep expertise in managing a highly variant, complex process.
    The successful integration of these three areas provides significant benefits to the operators:

    Lower costs associated with delinquency management.
    Consistent, repeatable process that yields better performance.
    A tighter process which reduces the frequency of delinquencies while also enhancing the overall resident and employee experience.
    Reduced risk exposure.
    It’s easy to overlook delinquency management with a feeling that there isn’t much you can do about it. Remember, however, that every dollar of cost reduction is a dollar that goes directly to the bottom line and typically results in $16 to $20 of equity value.

    Over the course of the next few months (and beyond) ClickNotices will be sharing the stories of operators that have taken command of their process, highlighting how it did and the impact it has had. We look forward to you joining us on the journey.