It’s every landlord’s worst nightmare, a tenant who can’t pay their rent. You go through application after application, select an “ideal” tenant, but when rent is due, there’s no money to be had.
So how can property managers and landlords avoid a scenario like this?
A simple step: proof of income. Verifying whether a potential tenant has the ability to pay rent should be right at the top of your priority list. Find out why this step is crucial, how you can go about getting this information, and what to do if their income doesn’t come from traditional sources.
Is Proof of Income Really Necessary?
You know the answer to this. Of course, it’s necessary.
This is an imperative part of the application process. It protects you and your rental property from losing money, not to mention protecting tenants from being evicted.
Most tenants aren’t out to cheat you, but it’s still important you cover your bases. The rental housing market is tough for both renters and landlords alike. Don’t cut corners because you receive dozens or even hundreds of applications. Take the time to go through each one and verify the information they provide.
What Kind of Documents Can I Ask For Proof of Income?
There are a number of documents that can prove their income:
a pay-slip or T-4,
a letter from their employer,
an income tax assessment (also called a notice of assessment [NOA]),
a tax return, or
a credit report.
Not all of these things are necessary, and sometimes, you need to give a good reason for why you’re even asking for these. For more information on what you can and can’t ask for, TenantsBC is a great resource for landlords and tenants. They provide a great FAQ on the Personal Information Protection Act for Tenants & Landlords in BC that can fill in the knowledge gaps. If you’re looking for more in-depth information, you can find that here on the Office of the Information and Privacy Commissioner’s website.
How Much Money Do Your Tenants Need to Make?
You don’t need to guess how much money a potential tenant needs to make in order for them to afford the rent. For a single tenant, a great rule of thumb is to verify if they’re only spending 30% of their monthly income on rent. That generally means the tenant is comfortable paying for rent without making major sacrifices to their daily life — like going without food.
For multiple tenant situations, you can figure out what they can afford by looking at their combined annual income. If it’s 40 times more than what you’re charging for rent, they’re more likely to be on time with their monthly rent. It’s not a guarantee, but if they’ve left that much of their income as a cushion, you have a better chance. This rule is no different than the 30% rule above just easier to calculate when there are multiple income sources going towards rent.
Don’t Say No to the Freelancer Right Away
It’s tempting to turn your back on those without traditional income sources, but you could be overlooking great, long-term tenants if you do. And we’re not just talking about freelancers. Those who are self-employed, cash-based or commission-based employees, retirees, or students won’t have necessarily have a pay-slip to give to you — and that’s ok! Students can get cosigners, business owners can show their NOAs or tax returns, retirees could show their bank statements. In other words, be open to people who don’t work a traditional 9-to-5. There are more ways to prove income status than a pay-slip.
And don’t forget that many people have little gigs on the side. We don’t live in a cheap part of the world, meaning many people supplement their income with other side gigs. Be sure to ask them for all their means of income.
Don’t get sucked into other people’s stories or you might end up with a professional tenant. If you’re worried you don’t know what to look for, we can help you find the right tenants for your rental property. Get in touch with our property managers at Pemberton Holmes Property Management today. We’ve got the experience and knowledge to screen tenants and look not only at their pay-slip but at the big picture.