Landlords have a right to safeguard their interests when renting out a property. As a landlord, asking potential tenants to show proof of income is one key way to lower your risk of a tenant not paying rent.
Tenant screening services do exist, and these services will be able to search for eviction history, criminals, sex offenders, credit reports and other information that all landlords should know about a tenant.
Property management services are also available, which will take care of every aspect of tenant screening from ensuring that the tenant has income to pay for rent to checking the criminal past of the tenant.
Landlords who want to take a do-it-yourself approach to verifying income can do so in a variety of ways:
- Pay Stubs. A pay stub for any W-2 employee will suffice to show proof of income. These pay stubs may also be accompanied by a letter from the employer. This letter will verify that the tenant is employed and is going to be staying in his or her current position. The standard is to ask for a person’s two most recent pay stubs.
- Profit and Loss Statement. If you’re self-employed, a profit and loss statement is often required. This statement is often needed by self-employed borrowers for mortgages, too. A profit and loss statement, along with previous tax returns, will show how stable a person’s business has been over the course of two years (in most cases) plus the months that have passed in the current year.
- Benefit Statements. Retirees that receive social security benefits or renters who are on government-related programs can provide statements to prove their income.
Bank statements and Guaranteed Investment Certificates are another way to prove income. If a retiree has $100,000 in their GIC or savings account, you may use this as a means to verify that the tenant has the finances to pay rent on time.
These statements can also be used to prove income coming in every month.
If a tenant is divorced or has a settlement that disperses money to them on a monthly basis, this would fall under a court ordered agreement. You’ll use this agreement to prove primary income, and this would include any income that is collected in the form of alimony.
Obtaining these documents is often easy.
Tenants will expect to provide their pay stubs or some form of income when renting. Landlords can simply request pay stubs, and if the potential tenant doesn’t provide them, you do not have to rent to the tenant.
You also have a right to verify the income, and this may mean contacting the bank to verify the income or contacting the employer to verify the income. There are chances that you’ll receive a doctored document, so it’s very important for you to do your due diligence and verify all of the documentation that you receive.
Tax returns can also be requested whether or not a tenant is self-employed. You can use these returns as just another safeguard to ensure that the tenant has the means to pay rent every month.
I set this blog up a couple of years ago now as a way to share my experience that I’ve gained through my school education and my real life education. It sounds geeky, but the economy is something that I’m really passionate about and it’s something that I am actually pretty talented in, so it’s great for me to share these experiences with those that may be struggling a little bit with finance and figuring out how to navigate the economy.