Many investors think that the hardest part about being a landlord is managing the tenant! That’s where there wrong! The hardest part about being a landlord is actually underwriting the application.
The tenant screening process is multifaceted. It takes a significant amount of time and effort.
However, it’s essential to ensure that the next tenant to occupy your property will respect it and can pay rent consistently. To judge whether a tenant will be able to pay rent, landlords and property managers need to have a clear understanding of the tenant’s finances.
The best way to gain this understanding is through income verification. Landlords accomplish that by requiring prospective tenants to submit proof of income before signing a lease agreement.
Income verification is a critical part of the tenant screening process. It helps landlords gain the full picture of their tenant’s financial situation.
Don’t just take their word for it. Do your homework!
What Can Be Used as Proof of Income?
There are many different ways to prove income, thus, it’s imperative to know what to look for in a document that a tenant submits as proof of income. It’s also important to know how prospective tenants can obtain them.
Here are some of the most common forms of proof of income to be aware of and where to find them.
- Pay Stub – A paystub is given out to employees at the end of each pay period. It details their hourly rate or salary, how often they work, who employs them, and more. A current pay stubs provide landlords with a lot of information about prospective tenants. Landlords can also use them to verify other details in the tenant screening process.
- Proof of Income Letter – A proof of income letter typically features a lot less information than a pay stub. However, an employer provides it. It details how much the employee makes. This needs to be a letter within the last 30 days.
- Bank Statements – Bank statements are typically used to verify income for self-employed tenants. That’s because they don’t have a traditional source of income. A bank statement only details the amount of money that is deposited in the account and the amount coming out. You can’t use it to verify job status.
- Government Benefits Statement – Government benefits are considered to be verified income, whether that be through social assistance, disability support or through the Canada Child Benefit, these documents count as income earned by a tenant.
It’s also important to keep in mind that some tenants may forge an official document. Not only is this against the law, but it also puts you at risk of renting to a bad tenant.
You must do your due diligence to ensure that the documents are real and accurate. You may require additional documentation or request reference letters to support evidence of income.
How to Determine Rental Affordability
Once your tenant provides you with their proof of income documents, what do you do with the information? How does it help you determine whether they can comfortably afford to rent your unit and won’t be considered rent-burdened?
The total monthly household income should be 3 times the monthly rent.
Finding high-quality tenants can save you a lot of time and money in the future. Great tenants set you up for long-term financial stability. That’s why it’s imperative to do your proper due diligence and not just look for the first warm body to move in to your rental property.
If this task feels daunting, Welcome Home is here to help. Feel free to reach out to our team to see if we might be able to help.