4 Ways to Verify a Rental Applicant’s Income

Owning rental properties is similar to any other type of business in that it’s accompanied by risk. Making that risk a calculated one is a smart business decision and a necessity. You have probably invested money in your rental units, getting them ready to lease. In fact, you may be paying the mortgage on the place on top of financing improvements and repairs. Then, you let a stranger move in based on a promise to make timely payments.

Calculating your risk requires that you check a prospective tenant’s financial situation. Although you aren’t selling your property to them, you might want to think like a mortgage lender. That’s because like a banker, you are taking a gamble.

Don’t throw the dice blindly. Complete your due diligence on the person asking to occupy your property. Here are four ways to verify a rental applicant’s income and estimate an ability to pay.

1. Let the Pros Do the Work

Can checking employment and income for a potential tenant consume a lot of time and energy? Yes, it can, and more tenants means more time consumption. That may be the best reason to pay a pro to do the work for you.

Income verification performed by a company that offers that service can be the most efficient way to do the task. These companies access payroll records for thousands of employers in the United States. Some offer apps that allow rental applicants to provide their own employment documentation for verification.

Usually what you get by working with an income verification company are quick turnarounds and double-checked information. It can cost less than $100 to pay a pro for the work. Depending on your local and state rental application laws, you may be able to charge applicants the fee.

These verification vendors are the same ones used by lenders and employers recruiting new employees. They know their stuff. If you want to leave the job to someone else, check them out.

2. DIY the Review if You Must

If you choose to verify employment and income on your own, make sure you do a thorough job. Begin by understanding what type of income a tenant needs to rent your property.

The proverbial rental rule of thumb is that tenants pay 30% or less of their gross monthly income for rent. So, if you’re charging $1,000 a month, the applicant’s pay should be at least $3,000. This is the same rule generally used by mortgage lenders as well.

To verify employment and income, you will need to contact the applicant’s employer. Most larger employers have a human resources department. You’ll need to figure out how to contact them for documentation, and you may need signed permission from the applicant. 

If it’s a small business, you probably need to talk to the owner or manager. Just make sure you obtain documentation of employment and don’t just take someone’s word. You can ask for a copy of the applicant’s W2 and payroll stubs so long as you have their permission.

In addition to asking if applicants are currently employed, ask the employer how long they have been. If it hasn’t been long, you might want to check previous employers as well. Someone who job jumps frequently may be a bigger risk than someone who stays put for a while.

3. Run a Credit Check

Verifying an applicant’s current employment and income is vital to reducing your risk. But just verifying these may miss another crucial part of the payment potential puzzle.

It would behoove you to also look at how much income applicants actually have to pay rent. For that, you need to take a look at their debt as well. You need to check their credit report.

Landlords can run credit checks on prospective tenants with any or all three of the major reporting bureaus. The cost will depend on how much information you ask for in addition to their credit history. If you also want the bureau to check for criminal records and sex offender registries, you may pay around $75.

You may also pay a premium for a public records search showing employment history, evictions, liens and judgments, and bankruptcies. However, that’s all pretty useful information, so it can be worth the expense. Again, you may be able to pass on the cost to the applicant.

Even a basic check will provide a summary of credit card and other debt as well as their balances. You’ll also see if they make timely payments, their credit score, and the percentage of credit they’re using. All that will give you a clearer picture into whether an applicant can afford your rent or not.