The last step when evaluating a rental applicant
You posted your rental, showed the property, ran a background screening and it looks like you found a good tenant.
You reviewed the background screening and can see that the applicant is current on their bills, has no collections and there is no criminal or eviction history.
But you need to take one last step before accepting the applicant – income verification.
You can try to contact the employer, but in my experience reaching them is difficult. And most employers are reluctant to provide that information even if you are able to contact them.
According to Melanie Petterson’s blog post on Fit Small Business, “Landlords should ask prospective tenants for proof of income to show they can afford to pay rent and to determine if they’re committing fraud with forged documents. Pay stubs are the best proof of income, but landlords also should collect at least one other proof of income document and compare the two.”
This is very good advice, with some exceptions.
Types of income verification documents
Patterson lists 7 types of verification documents –
- Pay stubs
- Tax returns
- Bank statements
- Letter from employer
- P&L statements
- Social Security benefits statement
- Court ordered agreement (e.g. child support)
What documents to request
We feel that this list can be streamlined after many discussions with landlords, property managers and real estate agents that use our TenantMagic screening services, You should be able to accurately assess an applicant’s income with just a few documents. The ones you should request depend on the applicant’s situation.
Pay stubs are good for both income and employer verification. But not all applicants are W2 employees where they receive a pay stub. Many are independent contractors, self-employed or independent business owners. We recommend that landlords ask for bank 3 recent bank statements in those cases. The applicant should be able to show that the reported income is going into a bank account. A bank statement is also a good supplemental document to go with the pay stubs for W2 employees.
A letter from an employer can be used when an applicant is changing jobs or starting a new job after graduating from school. We often see this with medical students that are starting residency or entering a practice where they had minimal income but will have enough income moving forward.
Tax returns are not recommended as they usually outdated by the time an applicant is applying. The income reported is from the previous year and even in the best circumstances are 2 to 3 months out of date. A lot can happen from the previous year so we don’t place much value on tax returns.
P&L statements can’t be considered reliable unless they are provided by a business’ bookkeeper or accountant.
Many retirees that get Social Security benefits also have pensions and/or retirement fund accounts. Social security and pension payments can be verified with a bank statement showing the date and amount of the deposit. Retirement funds are also typically paid out monthly and can be seen in an bank statement. You can request also request the retirement fund(s) statement if the current income is not adequate to meet the income to rent requirement.
Court ordered agreements such as child support should be able to be verified with a bank statement showing the income being deposited on a monthly (or more frequent) basis.
Document verification with background screening
At TenantMagic we have incorporated document verification into the decision process after the landlord receives the completed rental application and background reports. To see how click here Document Verification
After the application is completed and an Accept, Conditional or Pending decision is made, the property owner indicates that additional documents are required to complete the application process and specifies exactly what documents are needed. This can include income verification documents and others such as a photo ID.
An email with a link is sent to the applicant where they can upload the required documents.
Once the applicant uploads the documents, the owner or agent is immediately notified with an email that contains a secure link to the applicant’s documents that can be viewed and downloaded for their files.
With comprehensive background screening plus income verification property owners will not only a have a better understanding their tenant’s past history but also of their financial viability to meet their rent obligations.
About TenantMagic
Jay Apple is co-founder of TenantMagic.
TenantMagic provides online rental applications with the most comprehensive tenant screening reports available (credit, criminal, sex offender, and eviction) to property managers and owners.TenantMagic is free to owners and managers – applicants pay the fee.
Feel free to contact me at japple@tenantmagic.net or 216.288.5044