Collecting rent on time is one of the most important duties of a landlord. This ensures that you’re making the income you’re expecting to collect from your rental property each month. Though issues can occur for even the most reliable tenants that might make paying rent on time impossible in a rare instance, there are many ways for landlords to ensure on-time rent for themselves in order to avoid the stress of missing payments. One of these ways is to collect proof of income from prospective tenants during the tenant screening before signing a lease with them.
Proof of income is exactly what it sounds like: solid evidence that your potential tenant is employed and therefore has a steady flow of income each month that will allow them to pay their rent in full and on time.
Before drafting up your requirements, make sure to check your state’s laws and regulations to determine how much information you’re allowed to collect from tenants regarding their employment and financial status.
Why Is Proof of Income Important?
Proof of income is a crucial part of setting you and your future tenant up for success on your property. When tenants and landlords have issues surrounding rent payment, it can create a hostile environment, not to mention the costs you may be responsible for if you end up having to evict your tenant due to lack of payment.
Aside from the financial benefits of collecting proof of income from your potential tenants, taking this step can also provide you with priceless peace of mind.
As a landlord, you have many responsibilities to manage each day, and having a guarantee that your tenant is steadily employed and will be able to pay rent will take one more worry off your mind.
How Tenants Can Show Proof of Income
Because income can take many forms, there isn’t just one way for your prospective tenants to prove that they are employed and can expect a certain income every month.
While some landlords will simply ask for a bank statement from their tenants, others will take the route of requiring proof of employment in addition to knowing how much their tenants typically make in a month.
Pay stubs are the most common form of proof of income. The provided pay stubs should be as recent as possible and reflect the tenant’s typical monthly earnings.
However, if your potential tenant works a non-traditional job or is self-employed, they may not be able to show you a pay stub. This is where bank statements, tax returns, and 1099 forms can be helpful in giving you a clear picture of their income.
Additionally, some landlords accept letters from employers as proof of income. These letters should include a description of the tenant’s position and salary at their workplace. Letters from employers can also double as character references that allow you to find out more about your potential tenant’s dependability and personality.
Can Tenants Pay in Cash?
How you accept your application fees, security deposits, and rent payments is up to your discretion as a landlord. This means that you can allow your tenant to pay what they owe in cash if need be.
However, it’s important to still keep detailed records of every transaction made between you, as cash is less easily traced than personal checks, cashier’s checks, or money orders. Remember that presentation of cash on-site does not count as official proof of income.
Proof of Income on Unemployment or Disability
What if your tenant is not currently working but relies on a steady income of unemployment or disability benefits? Records of this income still count as proof of income and can be enough to ensure that your potential tenant will be able to pay rent reliably.
If these payments have an end date that falls within your lease agreement, however, make sure your tenant can provide proof of a future income source after that end date.
Do Alimony and Child Support Payments count as Income?
Court-ordered payments such as child support and alimony do count as income and should be included in your tenant’s proof of income. A letter of award from the court is the best way to receive concrete proof of these payments.