Multifamily Risk Management: Be Proactive, Not Reactive

TheGuarantors is a leading provider of risk mitigation solutions for multifamily owners and operators. Its product suite—lease guarantees, security deposit replacements, renters insurance, master tenant liability and compliance platforms—streamlines leasing and shields against financial risks, reducing bad debt and strengthening the bottom line.

We spoke with Aaron Victorson, SVP at TheGuarantors, about the latest trends in multifamily risk management.

Q: What trends are you seeing these days from operators around ancillary revenue and expense management?

A: I’m witnessing three trends in the multifamily sector. First, operators are looking to maximize every opportunity to generate ancillary revenue. Many in the C-suite are reevaluating long-standing programs, such as renters insurance, where they are taking advantage of opportunities to collect referral fees, or upcharge when force-placing master policies. This approach is always crucial in property management. In the words of one CFO we spoke with, “A dollar here and there adds up to real money,”

Second, rising costs are driving operators to meticulously manage expenses down to the fraction of a dollar per unit. They are negotiating with existing vendors, reducing costs wherever possible. PMS vendors and fiber optics, cable, Wi-Fi, and insurance providers are common targets for contract renegotiations to drive cost savings. Time is the unspoken currency of property management – and as such our clients are also looking for every opportunity to save their teams time. Centralizing administrative work, consolidating suppliers to make managing those relationships more efficient and looking for automation to replace manual tasks are all tactics clients have top of mind.

Third, operators are also more proactively managing bad debt by adopting security deposit alternatives and lease guarantee solutions like those we offer at TheGuarantors, which offer protection at no cost to the property. This approach mitigates the financial impact from bad debt write-offs, even in markets with high rents, demand, occupancy, and retention rates. Economic occupancy is more a focus than heads in beds these days.

Q: Is renter default a more prevalent risk for apartment landlords than is commonly recognized?

A: Renter default is a consistent source of revenue loss and a driver of vacancy for operators. Job loss, sudden healthcare costs, major life changes — all of these events can quickly leave residents unable to pay rent. We see this across all income levels and property classes.

Traditionally in property management, a lot of focus is given to leasing. But given the compounding challenge of higher turn costs from persistent supply chain issues and higher base interest rates, operators are more focused than ever on economic occupancy.

Q: For landlords, eviction is presumably a last resort. What are some more proactive measures landlords can take to lower the risk of default?

A: At TheGuarantors, we always advise our clients to take a proactive approach to reducing renter default risk. Conducting thorough screenings on prospective residents is an obvious first defense, particularly if you’re able to identify the most common causes of default at your sites and screen against them.

For example, clients often struggle to pick the right fraud screening provider as they don’t initially recognize there are many kinds of fraud: income, SSN, identity etc. There’s a balance between adequately filtering out risky applications and keeping the application process seamless for residents. We recommend clients try to track the kinds of fraud their teams catch manually before investing in a full suite of fraud screening tools.

Screening is an essential tool to reduce risk – but even the best tools can never catch everyone. That’s why many operators choose to implement our lease guarantee.

During the lease maintaining open lines of communication with residents is essential. Certain groups, like students or international renters, may not fully understand their lease terms, so early intervention to provide clarity can prevent issues from escalating.

Offering flexible payment plans for residents facing temporary financial setbacks can also help prevent missed payments and evictions down the road.

Additionally, leveraging technology like online rent collection tools and automated late fee assessments creates accountability and reduces manual work for landlords chasing down late payments.

Overall, taking steps to qualify residents, understand their circumstances, and streamline communication empower landlords to get ahead of nonpayment issues before they escalate.

Q: In working with clients on protecting against renter defaults, what guidance do you typically provide?

A: Our core guidance is to utilize risk mitigation solutions upfront to minimize default exposure from the start. Our solutions – including lease guarantees, security deposit replacements, master policy, automated compliance, and renters insurance – safeguard against various sources of lost income from the moment a lease is signed.

We advise putting proper risk protections in place from day one across your portfolio, rather than reacting to defaults after they occur. This preventive approach ensures operators have financial resources to fall back on if residents stop paying rent, and safeguard in the rare but potentially financially devastating events of market adjustments. As Warren Buffett said, “Only when the tide goes out do you learn who has been swimming naked.” In our business, during economic downturns, those who were unprepared come to us frantically for coverage that cannot be applied retroactively, while our existing customers sleep better at night.

We also guide clients on implementing strong screening criteria, customized resident incentives, and technology to automate compliance monitoring – all proactive measures to reduce defaults. The key is being proactive, not reactive, in order to sustain NOI and avoid revenue interruptions from the outset.