Tenants who pay rent late or refuse to pay at all is such a dilemma all too common among landlords. These troublesome tenants leave us paying the mortgage and dealing with evictions and turnovers. The best way to avoid this headache is to be clear on your prospect’s capacity to pay by requesting for proof of income and doing your own facts-check.

In this article, we will share some ways wise landlords make sure con artists don’t slip through the cracks and how you can too.

But first, what documentation are you allowed to ask from your prospective tenants?

Employed

• Pay stubs (Minimum last 3 months)
• W-2 (Wage and Tax Statement)
• Reference letter from employer

Self-Employed

• Bank account statement (Most current 3-6 months in PDF file)
• IRS Form 1099 (Miscellaneous Income)
• IRS 1040 (Federal Income Tax Return) for sole proprietors
• Form 4506-T (Transcript of Tax Returns)
• Profit and Loss Statement

Subsidized

• 1099-R (Pension Distribution Statement)
• Workman’s Compensation Letter
• Student Grants
• Social Security Statement
• Annuity Statement (e.g. child support/alimony)
• Court-ordered agreement
• Unemployment Statement

Whether your prospect is employed, self-employed, or receives assistance from the government or from their insurance company, you will need to verify the documents they give you. Here are some ways to do that:

1. Ask for more than one proof of income.

It would be easier to double-check facts for consistency if you have different documents to support the claim. For instance, while pay stubs can be faked, W-2’s are more reliable as they are made by the employer. Ask for legal statements too, especially their tax returns.

2. Require a signed form 4506.

One of the most reliable and affordable ways to check for discrepancies in their rental application and proof of income is by requiring your potential tenant to submit a transcript from the IRS with a signed Form 4506. This documentation can’t be forged as it should be stamped as official by the IRS. Plus, it’s free and only takes one business day to process.

3. Contact the listed employer.

Pay stubs can be fabricated online and some companies make a profit out of lying as if they are the employer. With the reference letter, you can check online if the name of the employer matches with the business registration, same goes with sole proprietors. And call the employer to issue an employment verification request.

4. Run your own credit report and background check.

It is advisable to run your own background check even when the prospect has already provided his or her credit history. The background report should have information on the prospect’s criminal history, bankruptcy, debt, credit, and eviction history.

You can cross-check the rental application, proof of income, and employment information through a background report. You can also compare their debt to income ratio. Also, check for defaults on payments on loans and bills.

5. Double-check bank statements.

For self-employed, freelancers, and sole proprietors, they may share their bank statements as proof of income. Aside from monthly deposits, look at the frequency of their withdrawals. Most important, be cautious of frequent transfers between accounts.

Parting Thoughts

Once you verify your prospect’s proof of income, determine their rent-to-income ratio and rent coverage. They should have two to three times more income than their rent. Also, they should be able to pay for bills as well.

Finally, be careful about how you ask for proof of income. Never ask for proof of salary or wages. Such can be misconstrued as discrimination towards subsidized prospects. 

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