Unprofitable tenants: the usual suspects? A case study of modelling tenant profitability

Studies have shown that certain tenants are frequently excluded from the housing market given landlords’ measurement of financial eligibility using opaque risk management approaches. What is arguably needed is a scientific model that would allow landlords to build their decision on the dependent variable they are most interested in; that is, customer profit. This would follow in the footsteps of other industries that commonly use customer profitability analysis, such as hotels, financial services, and the private health care sector. Using the case study of the German housing market, this study will construct such a model that landlords can use to evaluate tenant profitability. Using a methodology based on customer profitability analysis, the research will deconstruct the key variables that make tenants financially profitable in the eyes of a residential landlord, and demonstrate their interaction. This paper argues why and how a profitability approach adds value for the landlord and explains the model based on an extensive literature review.