How to Evaluate a Self-Employed Tenant

Posted by Sandy Jamison on Friday, December 10, 2021 at 9:57 AM By Sandy Jamison / December 10, 2021 Comment

Landlords prefer to get paid like everyone else, so when they hear the word ‘self-employed’ or ‘freelancer,’ it makes them more than a little nervous. Sure, we all admire an up-and-coming entrepreneur, but does it help to pay the bills? What about the ups and downs of a business? How can the tenant ensure that a dry spell won’t leave them months behind on the rent?

The same applies to gig workers, freelancers, and other professionals who don’t have a typical 9 to 5 job. Renting your apartment to these professionals does require a leap of faith.
However, there are things you can do to evaluate a self-employed tenant’s ability to pay the rent on time and ensure they are a good fit for your rental unit.

Request Bank Statements
In the case of employees, the easiest way to verify their income is to request a pay stub, W2 tax form, or call their employer to confirm their employment status and salary. But things become slightly more challenging in the case of self-employed individuals.

A fool-proof strategy to check their income is by going through their bank statement. Simply ask the prospective tenant to provide you with a three-month record of bank statements to establish income history.
It’s worth noting that some applicants may be a little squeamish about divulging their bank statements because it can also reveal information about personal purchases.

Pro tip: Set up recurring rent payments
If you’re still not convinced about the renter’s ability to pay on time, you can set up recurring rent payments. Your property manager should help you set up automatic rent payments designed to deduct rent from the tenant’s account every month. You can also incentivize your tenant to choose this option; for instance, you can give them a 2% discount.

Look up their Business
Time to put up your detective hat and investigate what their business is all about. Ask your tenant to provide you with information related to their business. Do they have a website? Do they have any licenses and insurances? Are they registered with your state? What are their customer reviews like? These are all indications that a self-employed person’s business is legitimate.

Pro tip: Run their business name on Google to see if it shows a Google My Business page. A non-legitimate business person would not go through the difficulty of setting a GMB page.

Talk to Their Past Landlords
Since you can’t verify their income through pay stubs or talk to their employer, a better approach is to get in touch with their past landlords. Self-employed applicants should have no problem giving you this information. Call those landlords and ask them if they would be comfortable renting to this person again. If the landlord says ‘no’, you should move to the next applicant.

Tenant screening is best done by a property manager because they have the tools and experience needed to ask the right questions.

Credit Check
A credit check will provide you with all the information you need to verify the prospective tenant’s ability to pay their bills on time. Key pieces of information include debt amounts, prior evictions, liens and judgments, and in rare cases, prior evictions. A credit check can also reveal any false information on the rental application and provide a clear idea about a person’s ability to pay rent.

What if the Person has Insufficient Income?
You can cut your losses and move to the next candidate. Or, if you don’t have other options, you can ask for a co-signer. A co-signer agrees to take responsibility for missed payments should the tenant fail to do so. A co-signer does not occupy the property and simply takes financial responsibility should the need arise. Just make sure to screen the co-signer to determine their income level.

Wrapping Up
Tenant income verification is an important step in the screening process. Property managers can save you time and effort by analyzing a self-employed applicant’s income to determine whether they are suited to your property or not.