How do you know if your applicant can afford to pay your rent? It’s amazing how many landlords fail to do this correctly. Sometimes I believe it is done out of desperation, especially if the property has been vacant for a while, landlords will want to quickly fill the vacancy to bring in some income.
There are a couple of items we do to analyze if an applicant can afford to pay the rent. We do an income and employment verification check. On our application the applicant must state what their income is and who are they employed by. Some applicants are self-employed, so I’ll touch on that in a moment. During our review process we will communicate with the applicant’s employer via phone, email and/or fax. We are looking for the applicant’s longevity at their current place of employment; the longer they’ve been there the better. If we see that the applicant is jumping around from place to place then we see that as a red-flag. The one thing that may offset it maybe that they’re staying in the same line of work, e.g. an auto mechanic has in his work history that he’s been at three separate auto service centers in the past couple of years. We will contact all the previous jobs for the past two years to confirm that he/she actually worked there and find out why they are not there anymore.
We verify income by reviewing the applicant’s last two pay stubs, last two month’s bank statements and/or last two year’s tax returns. Sometimes we only need the last two pay stubs, but if we have difficulty proving income then we will begin to request the other items as acceptable options. There are some applicants who get sneaky and will have their friends pose as an employer. Ask the right questions and you’ll see right through the scam.
When dealing with applicants who are self-employed, most do not have pay stubs to show as proof of income, so we ask for the last two year’s tax returns and possibly the last two month’s bank statements. Having come from a mortgage background, I’m able to review these items and come up with a possible scenario for their regular income. It’s not perfect, but it gives us a better idea of how much they make. We’ll also take a closer look at their past rental history and their credit report to help us decide.
One final word of caution is when you get someone who has to move quickly and is willing to pay 3-6 months ahead of time. It may look good at first and if you fail to follow your procedures because the applicant gives you a wad of cash upfront, you’re in for a big surprise. We had someone give us 6 months upfront on a year lease, guess what happened the last 6 months? You got it, we had to chase her for those last 6 months. It was no fun.
Make sure you stick to your procedures and verify everything you need to, especially the income and job history to ensure you minimize the risk of a problem-paying resident.
In our next and final article on this series, we’ll discuss reviewing an applicant’s rental history.