When you screen tenants you will want to collect proof of income (typically 3x the monthly rent) to show they can afford the asking rent.
Once you’ve identified a great tenant, but before any contract is signed, it is paramount to screen tenants and require them to provide proof of income for an apartment. For tenancy confirmation, it’s common for screenings to require a certain level of income – typically, this is three times the cost of the rent.
Here are eight proof of income examples that tenants can provide to show that they have sufficient income for your rental property:
Pay stubs are the gold standard of providing income as they include many relevant pieces of information. Some of these examples include employee’s name, employer’s name, gross income, contact details, and payment frequency.
A landlord should be requesting two to three months of pay stubs. This way, one can gauge the fluctuations that occur every month and see if the tenant’s income is sufficient for the unit. Bonuses and overtime may not be reliable enough to justify approving a prospective tenant.
As bank statements are issued monthly, they give a detailed window into the financial activity of a tenant. The prospective tenant’s deposits, fees, withdrawals, and spending are visible to the landlord, containing extremely sensitive information.
Unlike the pay stubs above, this document should be the final type of statement you request. Due to sensitivity regarding the private information, supplying this document may make the renter uncomfortable.
The social security statement is given out by the Social Security Administration (SSA). This document gives an accurate view of the income of a prospective renter who is receiving checks from the government.
Using the tenant’s earning history, the SSA can determine the future benefits he or she will receive. However, although an official document, the renter should be made aware that payments from the federal government may be volatile with changing laws in Congress.
The W-2 statement is the standard document used by the government to verify income for tax purposes. This official tax document is an ideal verification as it comes directly from the employer.
Although perfect for confirming financial status, it doesn’t necessarily consider the tenant’s recent raises, promotions, or job changes.
In the event the prospective tenant acquires income via freelancing, this is a perfect proof of income document. A person who earns more than $600 a month from freelance work must fill out the 1099 form.
If tenant wish to use this method for verification, they will need to provide a few months’ worth of documents. A number of these documents are required so the tenant can prove they can have a stable income without working a conventional job.
Tax returns (aka. 1040 Tax Return) are either supplementary documentation for a W-2 income statement or proof of self-employment. Additionally, the information on tax returns is also covered in the IRS 1099 form.
A versatile form, the 1040 gives insight into the tenant’s financial history from the previous year.
One of the more unfortunate methods of proving income is the severance statement. When people are laid off but looking for a short-term lease, this may be valid proof of income document. The information provides evidence of a lump sum given to the tenant, representing their pay.
As this is a one-time payment, it’s advised that the landlord treads carefully due to the uncertainty of the person’s financial position. Conversely, the large lump sum may be sufficient to pay for the entire short-term rent in a transaction.
A business owner may be inclined to submit a P&L statement as their proof of income document. While tending to be supplemented with other documents, the P&L gives an overview of earnings and expenses. This statement can be pulled out from records by a bookkeeper.
Outside of the specific businesses, the tenant may have other avenues of income. The prospective renter could use the 1040 tax return to prove self-employment and the renter’s financial history.
Checking proof of income documents is just one element of the tenant screening process. With Landlord Studio, you can run a tenant screening report straight from the app through TransUnion’s SmartMove service. This will give you a comprehensive report detailing your tenant’s credit score, rental history, and more:
Evictions can cost a landlord anywhere between $2500 and $3000, so performing sufficient background checks is a small price to pay to avoid such an expense.
This tenant screening check, along with verified proof of income documents, and landlord references will give you peace of mind when selecting potential future tenants.
With a wide variety of proof of income examples, it’s vital to be aware of a prospective tenant’s diverse background. Finding the right tenant for your property can take a comprehensive check into their finances, but considering the long-term agreement – a firm decision process is justified.