Tenant Screening: Tips for Verifying Applicant’s Income

by Chris on July 5, 2010

While performing a tenant background check, it’s important to keep the focus on profitability.  Does this candidate possess the potential to pay rent for the entire term of the lease?

Tenant Screening for the Traditional Applicant

The majority of rental applicants will have traditional employment.  An employer reference is a crucial part of your tenant background check.

Be certain that the company you are seeking a reference from is a legitimate business concern,  not a fiction or a business wholely owned by the applicant. 

Some employers are reluctant to discuss an employee over the phone, or may insist they do not offer employee references. 

There are two ways to handle that situation:

First, you could offer to fax a copy of the verification statement from the application to the employer to show the employee’s authorization to release information. 

Alternatively, you may place the onus on the applicant to ask their personnel office to release the information you need.  Be persistent and do not move forward with the applicant until you are able to verify the applicant’s employment history and salary.

 
Tenant Screening of Self-Employed Tenants

Many entreprenuers prefer self-employment to a standard job.  Today, self employment is a popular alternative to unemployment; however, more than half of these businesses will fail within the first four years.

When verifying income of the self-employed candidate, job history becomes a crucial part of the tenant screening process.  A candidate who has chosen self-employment as a way of life is probably more suited for the business world than someone who is scrambling to recover after a job layoff.

The self-employed applicant may not keep payroll records, although that may be required to properly assess taxes.  Indeed, the payment of taxes – or rather the incorrect payment of taxes and fees, may be what puts the business under.  Perhaps the biggest risk a landlord faces when renting to a self-employed tenant is having a business  creditor garnish the income.

Successful candidates will have banking and tax records to verify income.

Tenant credit reports are indispensible in showing if the self-employed candidate is overspending, or struggling to fund a business venture.

When conducting a tenant background check on the self-employed, look for:

 
  • Appropriate licensing
  • Listings in local business directories
  • Banking statements
  • Corporate records
  • Client references

If you find little evidence of the self-employed business outside of the rental application, you may have cause to worry about this tenant’s  potential.

Once you have collected the income information you need:

Decide if the applicant’s  income is enough to justify the rental price of your property.  Typically, rent should not exceed one-third to one-half of overall income. 

Determine whether the applicant has a steady work history.  Bouncing between jobs is a sign this candidate may not possess the commitment needed to be a good renter.  Periods of unemployment foreshadow bills going unpaid.

Also, look for clues that  the applicant is spending beyond their means.  

This post is provided by Tenant Verification Services, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).  

Click Here to Receive Landlord Credit Reports.

Disclaimer: The information provided in this post in not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.

{ 3 comments… read them below or add one }

Katharina Prochotsky July 6, 2010 at 7:00 am

Is there or could there be established a website where landlords can register a tennant who has left the suite in shambles, has had major money issues or caused other hardship to the landlord? A network for landlords that is easy to access and effective in stopping the difficult tennant in his/her track.

marv July 6, 2010 at 10:52 am

Katharina if you are a TVS or ATS member you can report tenant pay habits. TVS & ATS network in excess of 51,000 landlords in USA & Canada. When extending a lease to a new applicant, have them read & sign the Notice to Tenant which can be found in the forms section on the website. This document advises tenant of consequences for late payments, non payment and damaged rental property. Your question relates directly to why Landlords should be diligent about their screening process. Print the landlord checklist that is in the forms section on the above noted websites http://www.tenantverification.com and http://www.atenantscreen.com Use this form to set up your tenant screening process. Then follow it in each and every instance. As the old saying goes…”once the horse is out of the barn it is too late to close the door.”
In other words do a good job of screening your tenants before the lease is signed. Make a list of what your landlord criteria is, it should include credit worthiness and tenant worthiness. i.e. stable employment, good payment habits with current and previous landlord, adheres to tenant responsibilities as per http://www.tenantsinfo.com . Hope this helps.

Hawk July 7, 2010 at 8:46 pm

Katharina, the TVS system is excellent! ! And it’s growing fast!

Also, make sure you network with other landlords via the internet! There are over 1.5 million tenants in Ontario, and Ontario landlords are networking with each other more than ever before at Canada’s fastest growing Landlord website: http://www.ontariolandlords.ca (which is also a partner of TVS!)

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