Mitigating Risks through Income Verification
As a landlord, one of the most critical steps to mitigate risk is confirming a prospective tenant’s ability to pay rent. Before signing a lease, it’s essential to require solid proof of income. This helps minimise the likelihood of missed payments or an early lease termination due to financial hardship down the road.
The Income Guidelines
The general guideline is that a tenant’s gross annual income should be at least three times the yearly rent amount. However, verifying income has grown more complex as non-traditional employment situations increase.
The Changing Employment Landscape
Situations like gig economy jobs, self-employment, cash payments, and early retirement incomes present new challenges for landlords vetting applicants’ finances. While these circumstances are more difficult, landlords still have options to properly vet potential tenants.
Techniques for Income Verification
- Request a PPS number required for Residential Tenancies Board lease registration
- Obtain references from prior landlords and current employers verifying tenure and income
- Require copies of valid photo ID, proof of residency, recent bank statements, and pay stubs
- Contact employers directly to verify income for cash-basis or self-employed applicants
- Review assets like pensions and investments for retiree applicants
The Importance of Thorough Screening
Thoroughly screening tenants upfront reduces non-payment risks and costly eviction proceedings later on. It also ensures renters do not overextend their budgets just to cover rent. Although some work situations complicate verification, using a combination of these methods allows landlords to gain reasonable confirmation of an applicant’s income level.
Protecting Both Parties Interests
When entering a legally binding lease agreement, protecting both parties’ interests is paramount. Taking diligent steps to confirm an applicant’s ability to pay rent is a crucial responsibility for landlords. Do not overlook this vital part of the screening process. Verifying income shows prudence in protecting your investment.
