The Landlord Lens - Rental Fraud

Episode Date: January 14, 2024

In this episode of Be A Better Landlord, Krista and Jonathan break down common signs of rental fraud, the different types of common scams, and overall scam prevention so that you can feel confident conducting your property management business.

I'm Jonathan, this is Krista, and we're here to help you be a better landlord. So today we're going to talk about rental fraud. First of all, how common is rental fraud? Way more common than you would think. So according to a 2022-Dwellsy survey, 40% of Americans have either experienced rental fraud directly or know somebody who has and have lost money as a result. About $16.1 billion are projected to be lost this year from rental fraud. in America. So it is quite prevalent, unfortunately. Wow. And so just so everyone's on the same page, when we're saying rental fraud, what exactly do you mean? There are a variety of forms of rental

fraud. So today we'll talk about pay stubs and income verification fraud, but there's also other kinds of rental application fraud where you're misleading people. Money wiring scams have become more and more prevalent and other kinds of sneaky things like illegal sub-leasing. Okay, so let's talk about faking pay stubs. How do people go about faking a paste up? It's gotten easier and easier as photo editing technology has gotten easier to use. So oftentimes if somebody is comfortable, they could just do it on Photoshop themselves. There are also companies out there that are taking advantage of this shady market,

and they can produce a fake pasteup for $5 in less than five minutes. So it's kind of easy to do, unfortunately, which means landlords really need to look out. Yeah, wow, that's scary. So when looking out for a fake pasteub, what are some of the red flags? Telltale signs are going to include things like people using zeros and o's interchangeably. That's not correct. You're really going to be looking for anything that just kind of sticks out like that. Similarly, if the numbers aren't properly aligned, if it just doesn't look professional,

and if you see that basic information changes page to page, not good. And finally, something that I think people should really take into account. Most people aren't paid in even numbers, right? So if my pay stub says $4,000 even, first of all, bully for me. But second of all, that is less realistic than something like $3,997. Because, again, most of us don't get paid in perfectly rounded numbers. So that should be your first clue to look further. Yeah, that's a good point.

So if somebody, if a landlord gets a pay stub that they find kind of suspect, beyond looking at the paystub itself, how else could they verify? Sure. So it's really important to do your due diligence, which means looking up the company in question. You know, you have access to the web, look them up, see if it looks like an actual site.

It should have information about how to contact the business. All legitimate businesses do. It should have a greater scope outside of just being a farm for paystups, right? You can also call them to verify employment for people, or otherwise just make sure that they're based somewhere that makes sense. If your tenant, if your applicant has said, hey, I am a trucker in the United States, this is the only place I work, but the company is based in Japan, you should have questions because that doesn't align with what you've been told.

Yeah. What about applicants who don't have your typical 9 to 5, you know, consistent pay stub kind of job? they're still making money, it just may not be one that gives them a pay stub that they can actually show. So how do we verify that income? Yeah, so let's say you have a freelancer who's trying to move in. You could ask them for either a 1099 miscellaneous form. That's the tax form that contractors receive after they've been hired on for a job. You could also ask for their tax returns, bank statements. There are a lot of different ways that you can pull things in to verify the money that's coming in and out, they don't get an actual paste in.

So before move in, what should you do if you think an applicant is faking their income? Approach the conversation carefully. In a lot of states, source of income discrimination is something that can be implemented. So meaning you can't discriminate against someone based on their source of income. With that in mind, you just need to ask for more documentation. Say, hey, I wasn't able to verify your income based on the documentation you provided. can you provide me X, Y, Z documents by this date in order to move forward? It might be a bit of a hassle for people who are actually engaged,

renters who want to have your property. But if they want to live there, they're likely to follow through. Bad actors, on the other hand, are going to see that you are not falling for their scams and likely just move on at that point. Okay, what if you have an actual tenant who's already moved in and you're starting to think they may be evaking their income? It's going to be a sticky situation. and I'm sorry because it's going to be complicated as well.

I would say, first, gather all the documentation that you have at your disposal, get their rental application, anything that they provide it to you. If you didn't do your due diligence before by checking into the company, as we've advised here, do that no. Do not confront the tenant. I would instead grab a lawyer and talk to them, let them know your concerns, share the documentation, because most likely this is going to lead to an eviction. Yeah, never a fun time.

A very expensive time, which is not fun. Okay, so we've talked about rent or fraud. What can landlords do to best avoid it? So, unfortunately, it's going to be a matter of doing your due diligence, which means as you're getting in rental applications, you want to take these tips and run with them. You want to be checking to see if the O's and zeros are being used interchangeably, if everything looks accurate and professional, if it's physically aligned on the page. But if you want to go a step beyond that, we do offer something called income insight. with TurboTenet Premium subscriptions. So Income Insights is provided through TransUnion, who also does all of our tenant screening.

They're fantastic. And when you are verifying an applicant's self-reported income, TransUnion pops up and says, hey, this is within the range that they actually are making based on all of our documentation, or, hey, this is less than what they're actually making, or more than what they're actually making. So it's a good way to get a better feel

for what your applicant is actually bringing in so that you can make the right choice about whether or not they are, fit for your rental. This gives you a little more confidence that they're telling the truth before they move in. Exactly. Exactly. So it's a great way to cap everything off. I wouldn't say only use income insights. You want to use every single tool in your toolbox to make the right decision. Yeah, makes sense. Okay. Well, thanks for talking us through renter fraud. And if you out there have any other questions of anything we didn't cover when verifying income, leave them in the comments below.

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