When evaluating potential tenants for a rental property, it’s imperative that you screen them thoroughly. The truth is, anyone can look great on paper and seem legit in person, but there are a lot of hidden pitfalls to renting that could come back to bite you if you’re not careful. One of the best ways to weed out bad apples is to verify each applicant’s income. This can significantly reduce your risk and save you a lot of money and hassle in the long run. Here are a few expert tips to help optimize the process.
Apply the ‘3 Times’ Rule
Despite what it sounds like, proof of income involves more than just verifying that a prospective tenant has a stable job. It’s also critical that you determine whether an applicant is bringing in enough money to be able to comfortably afford the rent each month. For this, we recommend applying the 3X rule, which means a tenant must have an income equal to 3 times the amount of rent in order to qualify. If this isn’t the case, you may still consider renting to them but requiring a co-signer to mitigate your risk.
There are a number of different ways to verify a person’s income and it’s commonplace for a landlord or property manager to require documentation of one or more of the following:
- Pay Stubs
- W2s or 1099s
- Tax Returns
- Retirement/Pension Plan/Social Security Distribution
- Employer Verification
Don’t Forget Non-Traditional Income Sources
Some applicants may not have traditional jobs with weekly paychecks or managers to verify their employment. This may include individuals who are self-employed, commission-based or cash-only employees, students and retirees. In these cases, the prospect may be ideal, but you’ll need to do a little more digging in order to determine this. For instance, you might need to ask for other types of income proof, such as copies of bank statements, etc. Again, requiring a co-signer might also be a wise idea.
A good tenant is a paying tenant. To avoid arrears situations and the potential cost and hassle of an eviction, go the extra mile when screening and be sure to properly verify income. It may take a little more time and effort, but the headache it’ll save you in the long run will be well worth it.