Alberta Landlords Association

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)

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