When you’re renting out your property, the last thing you want is tenants who are unable to pay rent. Non-payment will at best throw your budget off for the days in which payment isn’t received, and at worst will lead to you having to evict the tenant. Having to evict a tenant who couldn’t pay means time wasted finding them and getting them into the property, as well as months of rent that you’ll have to put effort into recovering. While your tenants are probably all well-meaning, if they don’t have the income necessary to pay rent each month if an emergency pops up, they might not be worth renting to.
A rule of thumb for renting your property to an individual is that their monthly income should be 3 times the cost of rent. There are times where you might make an exception; if you have enormous faith in the person’s ability to budget and pay their rent on time, or if they have a cosigner, you might be more inclined to rent to them if their income is a bit below that threshold. That said, verifying the income is still extremely important; a simple credit check isn’t enough, and you’re looking out for both your and their interests by verifying.
Another reason that income verification is so important in this day and age is the gig economy. A lot of folks make their money with freelance jobs; they might drive for Lyft, run their own shop on Etsy or use their Instagram page for marketing. Any of the above means inconsistent income, so it’s a good idea to get a few different paystubs from these individuals; a consistent income with little fluctuation from month to month is a good sign. There are also commission based workers in sales and other industries; you should hold these individuals to the same multiple paystub standards. Another group whose income can be difficult to verify is retirees; finding out how much they make from pensions and social security is important because they’re an attractive group to rent to when they have sufficient income.
The most obvious way of verifying income is by looking at pay stubs; get a few of these from 2 or 3 months of work, and be especially diligent when verifying the pay stubs of non-salaried employees. Employers are another great way of verifying income; a letter or statement from an employer explaining the commission structure or confirming salary can be a good way of learning more about the prospective tenant’s financial situation, as well as confirming good standing with their employer. Tax returns, W2s, and 1099s (the miscellaneous income form) are other useful tools for confirming income, especially for tenants with inconsistent income. Statements from social security, pension, and retirement funds are sufficient for a retiree’s income.
Among the plethora of advantages that come with hiring a rental property management company is their ability to verify income. Your success is their success, so property managers will vet the income of prospective tenants, making sure to paint the full picture of the prospect’s finances and establish a good basis for whether or not they should be rented to.