As a landlord, you must do all that you are capable of doing to protect your investment property. One of the most productive means of protecting your investment property is to ensure that your tenants are capable of affording their rent each month. In this guide, we will outline various strategies on how to verify proof of income from prospective tenants. Ultimately, you must make certain that whoever rents from you are capable of paying their rent in full and on time. If you fail to verify a tenant’s proof of income because you feel as if it is an invasion of privacy, you may find that it detrimentally impacts your financial security.
Verifying income helps to ensure that your tenants are able to fulfill their lease obligations and it reduces the possibility that tenants will struggle to pay you and will struggle to pay on time – which will place an undue financial burden on you. In this comprehensive guide, we will outline a wide assortment of strategies that you may use – as a landlord – to verify the proof of income of those individuals who have a desire to rent out the property that you have available.
Verifying income helps in determining if the tenants that you have are capable of fulfilling their financial obligations and aid in reducing the likelihood that rent payments will be missed or late. By doing your due diligence and verifying this information, you are taking the steps necessary to safeguard your own income. Below, we have outlined a variety of methods that you may utilize to verify the income of your tenants.
- Review Pay Stubs – A pay stub from an employer will include a lot of information. Most of the time, it contains the name of the applicant, the information associated with the employer, the dates of the pay period, the gross earnings of the applicant, the deductions that were taken out, and the net pay. Not only does reviewing a pay stub allow you to confirm the employment status of a potential tenant, but it will allow you to determine their income stability. If you do request a pay stub, you should be aware that it is possible you may receive fake ones. You should learn how to identify a fake one. Examples of strategies used on fake pay stubs include using Os in the place of 0s, the use of rounded numbers, incorrect or missing information, and an unprofessional appearance.
- W-2 Tax Form – If you want to review a legal document in order to verify a tenant’s income, you may request a W-2 tax form. This document will summarize the total annual earnings – which will include salaries, bonuses, and tips, and all taxes that were withheld. This will verify the income from the previous year and aids in verifying associated information included on their rental application – such as place of employment and general earnings information.
- Tax Returns – You may review the IRS 1040 tax returns for your potential tenant for the past year or two. This will show their income and the deductions that they claimed. This will not show an up-to-date income, but it will give you a good idea of about how much the person makes each year.
- 1099 – If the potential tenant is self-employed, you may review their 1099 MISC Form in order to get an idea of just how much they make each year. Keep in mind, though, that this will show how much they earned in a previous year and there could be a significant difference between that amount and the amount that they are currently making if they are self-employed, are a gig worker, or a freelancer.
- Bank Statements – Bank statements are detailed records of a person’s financial-based transactions including deposits, withdrawals, and account balances. You should ask for one to three months’ worth of bank statements to get an accurate picture of the potential tenant’s financial situation. If a person is self-employed or unemployed, this will provide you with a glance of their financial situation.
- Bonuses and Other Payments – Sometimes, tenants will have bonuses and other types of payments where they are able to earn additional money. These payments will help in the ability to cover rent payments and making those payments on time. You may ask to review bonuses and other types of incentive payments received.
- Official Company Letterhead Communications – There may come a time when you have a potential tenant that has received a job offer but have not received their first pay check yet. In these instances, you may review job offers and/or contracts regarding employment – just make sure the communication is on official company letterhead and if you have any doubts about the document, be sure to contact the company directly. These offers and contracts will typically outline the job offered, the pay, how often the individual will be paid, the start date, and other relevant information.
- Workers Compensation Letter – If the applicant experienced a workplace accident, they may be receiving workers compensation. If so, simply request a workers compensation letter. This will help you make an informed decisions about their ability to pay rent and whether or not they can pay rent on time.
- Benefits Statement from Social Security – If a potential tenant receives payments from the government as their main or secondary source of income, you may request to see their benefits statement from Social Security. The statement will typically include information like the amount of their monthly payment, adjustments for cost of living, the duration that they have received their benefits, and when the benefits expire. While the amount may be limited, it is important to understand that benefits provided by the SSA are considered to be a steady income source. Keep in mind that your potential tenant may have additional income outside of these benefits.
- Statement from Unemployment – If you find that the potential tenant is unemployed and they receive unemployment benefits, you may request their unemployment statement. This document will show the amount that they receive as income. It must be understood, though, that unemployment benefits only last for a short time. Outside of the duration of the benefits, the income of the applicant may be uncertain.
- Employer Letter – You may request an Employment Verification Letter to verify the income of your potential tenant. In most instances, this will outline how much of a salary the individual makes and possibly even howe long they have worked for the employer.
- References – The next way you could validate income is to talk to references that a potential tenant gives you.
What Documents Should Tenants Have When They Want to Rent?
When a tenant wants to rent out a property, they should be required to have proof of identity, evidence that shows they are able to pay the required rent, employment verification, and any associated documents pertaining to identity, income, and employment.
Does Proof of Income Have to be Shown if a Tenant Pays in Cash?
Yes, even if a deposit or rent is paid in cash, proof of income should be showed. If a tenant is unable to provide bank statements, tax documents from the previous year are acceptable.
How Can Proof of Income Be Shown Without Pay Stubs?
If a potential tenant has no pay stubs, you may use other ways to verify their income. These include bank statements, the previous year tax return, or through a letter from the employer that validates employment, salary, and how often the individual is paid.
Can a Landlord Call a Tenant’s Employer?
Yes, a landlord may call a tenant’s employer for the purpose and intent of employment verification.
Should Applicants Who Cannot Provide Proof of Income be Rejected for a Rental?
As a landlord, you must follow all of the Fair Housing Laws when you are going through the tenant selection process, but renters must understand that they must show proof of income when electing to apply for a rental. Landlords must verify through the proof of income provided that the tenant is able to afford the rental. If not, you may decline a potential tenant.
We Can Help You
We here at Pioneer Property Management offer many services for landlords that own property and require assistance in selecting tenants. We offer the most comprehensive of services to out clients. Examples include the following:
- Property Evaluations
- Tours
- Advertising
- Tenant Selection
- Lease Preparation and Signing
- Lease Enforcement
- Rent Collection
- Maintenance
- Emergency Services
- And, more!
If you would like assistance in verifying income for potential tenants, let us help you! We offer the most comprehensive level of services at the most competitive of prices. Our standard services include consultation, marketing, showings, promotional platforms, contract and lease preparation, accounting, maintenance, tenant relations, security deposits, and inspections. To learn more, contact one of our property management specialists today by calling the following number: 720-839-7482 – to date, we have had zero evictions on the tenants we have selected. Let us help you now!
