After the recession of 2008 that happened around the world, many people turned away from traditional employment and into self-employment so they could make ends meet.
There are great income opportunities for those who are self-employed, but for a landlord, self-employment also eliminates an employer reference.
It also creates difficulties in verifying income so that an empowered decision about a potential tenant can be made.
Can you verify income from a self-employed tenant effectively?
If so, what are the ways?
All Income Must Be Reported on Tax Returns
One of the most common methods to verify income for someone who is self-employed is to take a look at their tax returns.
Both state and federal returns required the self-employed to file their exact income numbers and this can give you an idea of what their actual income happens to be.
Because being self-employed can vary from year to year, it is a wise decision to require a minimum of two years of income documentation through this method if the information is available.
Some landlords have gone the extra step to require signed tax returns instead of e-forms for further verification.
If your tenant is running a local business from their rental property, there's also a good chance that they have a business license with your state or local government.
Checking on the validity of this license and seeing if there are any tax payment complaints can help to shine some extra light on a potential tenant's ability to pay their bills on time.
Bank Statements Can Provide the Information Needed as Well
For some who are self-employed, they may not ever see actual cash from their efforts.
Digital currencies like Bitcoin are becoming a popular way to pay internet marketers and those who do service work online.
Other digital processors, like PayPal or WePay, regularly see cash flow through an account for the self-employed as well.
By requiring a statement of money received, not sent, you can get an idea of how much income is actually being made.
It is important to not request a full history, but instead specifically request a financial history of incoming business payments to verify income.
Many freelancers and self-employed workers are sole proprietors and so a full bank print out could be considered an invasion of privacy because it will show their personal payments for things like groceries too.
If neither of these options are available because someone is getting cash under the table from their clients, then it's probably not a good idea to rent to them because there is no way to legally verify the income.
Cash under the table is usually not reported anywhere and this creates a problem for a landlord if the tenant stops paying rent because there is no real way to verify that the income for rent was ever there in the first place.
With these steps in place, you can verify most incomes for those who are self-employed.
That way you can know what their working reputation happens to be so you can make a sound decision about a tenant who has applied for your unit.
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