Fake I.D.s are the talk of any college dorm floor, but getting an underaged bar-goer a drink isn’t the only damage they can cause. Fraud in identity wreaks millions of dollars in havoc on commercial apartment rentals and it goes beyond fake identification. Worse, this fraud’s sophistication continues to force constantly evolving property technology to outwit fraudsters. Annually, properties lose millions of dollars and it’s preventable.
Asset managers who round out portfolios with commercial property need to know the loss prevention tools available and how they work to help ensure positive net operating income and profit growth. That means understanding where and how fraud can happen and how it can be prevented while still working within fair housing rules and regulations.
Rental fraud and its AI upgrade
Most properties require renters to provide detailed information to secure the rental. Property managers and operations leaders have long looked to identification, credit scores and background checks to give a glimpse into the character and situation of the potential renter as a means of trying to evade income loss through non-payment of rent or worse, the nearly $25,000 or more expense of an eviction. One of the most important factors in approving a renter is uncovering financial evidence that they can afford the rental payment. Paystubs have long been a symbol of a regular income and a company source to ensure employment of the prospective tenant.
And that’s where tech has evolved. There are a multitude of online vehicles teaching bad actors how to create a fictious paystub. Finding them is easy – TikTok videos and other social sources like Reddit communities openly share how to commit this type of fraud and where to resource fake documents. Not only are the resources available, but they’re also improving. New AI models enable fake paystubs that mimic well-known businesses and instead of looking like a cut-and-paste photocopy, they produce original documents with proper names, identifying numbers and more. To an on-site property manager tasked with giving tours and filling vacancies, these documents can pass muster.
That’s why property tech has had to evolve to match the speed and accuracy of AI by developing document scanning technologies that can identify how a document was produced and its legitimacy. Snappt, one company using document scanning to prevent fraud, has scanned more than 8 million documents with 98% accuracy. And the technology doesn’t have to put the property manager in the position of telling the tenant they’ve been declined. Instead, the tenant is responsible for uploading their documents to the portal and proptech platforms like Snappt do the messaging and explaining for the property manager, providing service to the tenant to uncover why their documents may not have read as real.
Proptech is matching fraudsters as they evolve, too. Not only does the technology learn and scan millions of documents, but the human assist includes fraud detectives and those tracking for trends in how the documents are made, helping to train the AI scan as fast as fraudsters develop new techniques. The humans a part of the equation are also getting down to the nitty-gritty and helping the technology identify key signifiers that a document is fake, giving more ammunition to the AI to spot more and more discrepancies as they arise.
Why a background check isn’t enough
A background check – the former standard bearer for rental fraud protection – only identifies past actions a fraudster has conducted. Worse, it only identifies those actions if they were caught. A background check can identify past crimes, evictions or even bad credit scores. But just as a background check doesn’t tell the story of what a renter is doing to improve a bad credit score, it also doesn’t tell the story of fraud that wasn’t caught or criminal actions the renter has yet to commit. It’s a character gamble to believe a clean background check is an indicator of the ability to pay rent or the intention to uphold the rental agreement. Getting that gamble wrong can result in significant losses to the property and extended effort in evicting a tenant and finding a new one.
Paystub material is a better measure of the “now” and accurate identification leads to accurate banking and background checks. But when fake documents are so readily available and are crafted with increasing accuracy thanks to AI, a different stop gap must be deployed.
Renter reviews that abide by fair housing laws
Fraudsters are regular people and often we hear about the unbelievability of the character committing the fraud. Media and culture have taught us that “bad actors tend to look bad.” But not in a digital age. These actors could look like any other renter just trying to get their way into their dream up-scale apartment. People want to live in flashy penthouses, and they’ll do what’s necessary to get approved.
Solutions like Snappt keep applicant identities close to the vest. Ultimately, applicants are judged based on discrepancies in their documents, not on their histories – a reinforcement of fair housing. For instance, what matters is the honesty of a paystub and what applicants are being paid today and whether or not they qualify for the lease, not a clean criminal history.
Proptech on site is a bellwether for investors
Using fraud detection tools and solutions like Snappt helps asset managers better evaluate the potential of their investments and protect their portfolios. With strict application fraud detection and income verification, property managers can ensure that units are filled with honest and fiscally responsible tenants, lessening the risk of future evictions and bad debt across the portfolios. What’s more, time savings, operational efficiency and consistency in vetting applications put real estate investments in the net positive from the bottom up. Property staff are using their time more efficiently and feel safer doing their job knowing prospective tenants are who they say they are, especially during lease tours.
The goal for all investors in real estate is to decrease and eliminate as much bad debt as possible, and with the right tools, teams and technology, this can be achieved and more.
