Both beginning real estate investors who are buying their first rental property , first time landlords, and even experienced landlords often overlook the crucial steps to take to verify a tenant’s income. Not doing this can end up being an expensive mistake, both in lost rental income and damage to the rental property.
If there’s one property management business plan tip to always remember, this is it.
Why Verify A Tenant’s Income?
In today’s real estate rental market, rents continue to go up while tenant’s incomes remain the same, or maybe even go down.
When this happens, people who would normally rent a place to live just for themselves often find that they need to have one or more roommates in order to make ends meet.
It’s easy to verify a tenant’s income when you’re only talking about one tenant. But dealing with verifying the incomes of multiple tenants is a bit more difficult.
This is also where problems can occur.
Verifying The Income Of Multiple Tenants
As a rule of thumb, and depending on local laws and customs, landlords will usually require a total income of at least three-times the monthly rent in order for a tenant to qualify for a rental property.
Problems can occur with multiple tenants.
Many landlords believe that the more tenants they have on the lease, the more secure the lease will be. That’s because the more people there will be to go after if the tenants default by not paying their rent.
All of this might be true. But good landlords and property managers know it’s much more important to find and keep great tenants than having to chase down the bad ones for money owned.
The Risks Of Multiple Tenants
If one of the tenants on the lease ends up losing a job, relocating for work, or simply never moves into the rental property, the landlord ends up with a weaker group of tenants than expected.
Self-employed tenants can also be a risk, especially when the tenant says he works a cash-only job.
This type of tenant will offer to present a letter from his employer verifying the income. This is always a big, big red flag for a landlord and a property management company. Tenants with cash incomes will almost always create problems for the property owner – usually sooner rather than later!
Landlords should remember that it is more expensive to evict a tenant and repair damage to the property that it is to wait for a tenant whose income can be properly verified.