How can a tenant show proof of income? Prospective renters will often state their gross income, thinking that this qualifies them for the apartment they want to rent. However, after taxes, insurance and 401K contributions, they show much less in income than they originally believed. The truth is, most people do not know how much rent they can realistically afford.
Most people are not trying to inflate their income, they just don't understand their cash flow. When determining if they qualify for your rental, you have to question their stated income and make some determinations. Most people only consider gross income, instead of net income after expenses.
So how do you verify an applicant's income?
First, you should look at a W2 or 1099 statement. This gives you a basic idea of what the applicant takes home in salary. Some landlords also ask to see a tax return. This can be complicated because often tenants do not have these items readily available.
A letter from an employer is often easy to obtain. Also, if the employer provides a reference, that is something to consider in the applicant's favor.
Be sure to verify any letter from an employer as these can be easily forged.
Other means of verifying income include bank statements, several months of pay stubs, or statements from pensions and annuities. Some people will have assets from court ordered awards, severance statements if there is a large payout, or bonus payments.
Some applicants may also be receiving workman's compensation, and a statement by the insurance company or the court is easy to verify. Be sure to determine the expiration date of the compensation.
After factoring in expenses such as utilities, transportation, insurance, you want the monthly income ratio to be two to three times the monthly rent. Our rent rate analysis provides a ballpark figure of what a prospective tenant's income should be for your monthly rent payment.