Am I asking too much? 2 yrs tax returns & 2 mths bank statements

27 Replies

So I am using an agent to find a tenant for my property. I get an application and my agent says he is a nice normal guy.

I get the application and it is MOSTLY complete and states he makes almost 18x the monthly rent I am charging. He wants to rent because he owns a few small businesses locally, but also owns a business with family in a town about 5 hours away. He ultimately just wants to rent until he finalizes his plans. 

So I am on board at this point, but I have a bad feeling. The potential tenant didn't provide his DL#, didn't provide his SS#, only provided contact info for his most recent landlord, but no property address. I know he rented before that, but he did not provide the address or landlord info. Additionally, he said his GF is going to live with him in the property, but he doesn't want her on the lease because he is paying all of the rent. Just a bunch of little things that tell me this guy is hiding something or he makes so much money he thinks he doesn't need to provide that info.

Anyway, I went ahead and asked my agent to ask him and his GF to fill out the SmartMove application so I can see their background and credit. They did that and their credit is good with no history of issues. However, he has 2 DWI's and 2 speeding tickets on his criminal record. Hers is clean. At this point, I wouldn't say he is going to be the pillar of the community, but I am still in.

So I then advised my agent that I would like to see 2 years of tax returns to verify his income since he is self-employed or W2's, if he pays himself a salary. Additionally, I want 2 months of bank statements to verify his deposits. My landlord told me they do not like to get involved with financials and I am asking for too much. She advised that good credit, good payment history, and none sex offender is really all I need to be concerned with. 

I do not agree with her sentiment on the info I want to see. Do you all think I am asking for too much? What would you all do in this instance?

I am about to draw the line and say I need the tax returns or W2's, bank statements, missing application info, and his GF must be on the lease. If they do not want to provide that then I think this is not a good tenant for me.

That said, the one reference he did provide said he was a good tenant. However, his daughters also lived at the home and he was seldom there because he traveled a lot.  

Thank you

I think you should listen to your instincts. If you have a bad feeling I would just decline him and not bother asking for any other documentation. I have found that ignoring one’s instincts almost always leads to problems.

Keep looking for a more suitable tenant. The fact that he does not want to add his girlfriend is also suspicious and I would not accept him without also adding her to the lease and doing a background check on her.

Originally posted by @Amy Beth :

I think you should listen to your instincts. If you have a bad feeling I would just decline him and not bother asking for any other documentation. I have found that ignoring one’s instincts almost always leads to problems.

Keep looking for a more suitable tenant. The fact that he does not want to add his girlfriend is also suspicious and I would not accept him without also adding her to the lease and doing a background check on her.

 Thank you! So I know for the future, do you think I am asking for too much info?

@Cameron Marmon I don't begrudge any landlord for seeking as much information as possible, but people who run successful businesses have taxes that are not very telling at all and may even show a paper loss.

I don't argue with my gut. I already know more about your potential tenants than I would want to know about if my gut was telling me to move on.

Good luck!

Asking for tax returns seems weird. For the self employed I always ask for a bank statement.  Also always get their social security number so you can send them to collections if you have to.

It's your house and your rules.  If the PM thinks you are asking for too  much info then ask them to guarantee the payments.  In any event don't let the BS get to you.  If he makes 18x the rent and doesn't want to give you what you need to be comfortable move on to the next applicant and maybe even get a new PM.  They work for you not the other way around.  Also no SS# no lease. 

I am self employed , and  if I were renting and you asked for my tax returns , thats a simple no . Bank statement would be fair , I would let you look at it , while I was there and I would have some info blacked out . As far as the GF , yes , she has to be on the lease .

But , the gut never lies 

I think tax returns is too much. Any way for you to verify he owns the businesses he says he does?

I’m a landlord and a tenant so I have a unique perspective on things like this. As far as background check goes, I think holding speeding tickets against him is a little unfair. People get those all the time, often due to speed traps.

Hi Cameron,

I'm going through refinancing a property and 2 years tax returns is what I'm providing to get a loan, so needing that just to rent a house seems like a lot but I do echo the sentiments of the others to follow your gut. If you miss out on this guy, if you have a good property, others will come. 

Also, you should definitely have the gf on the lease. Anyone living in your property over 18 should be co-signers.

I have not faced this situation before with a self employed person. I am thinking a year of tax returns would be more reasonable. Also some way to make sure he is the business owner. I am just responding to your follow up question btw and I would not accept this particular tenant.

Hi @Cameron Marmon ,

You may know from experience that the mortgage industry by default does not care about your stated income as a self employed person, just what your tax returns say, but this guy is signing a 1 year commitment, not a 30 year one.

If you want to meet in the middle, ask where he reports the bulk of his business income, and just ask for that page for a year. Schedule C if sole proprietorship, K-1 if it's that, etc.

Kind of like when you are doing due diligence on a rental property, you might ask the sellers for their Schedule E with other properties and their SSN blacked out, but you wouldn't ask for their full two years of all schedules of their tax returns.

One or two months of bank statements will not tell you squat with any reliability. Oh look a realtor got a $50k commission check, they must make $600k/yr? Nope, think again...

You are pretty much vetting this person just as much as a bank does for someone applying for a mortgage. I am not that strict with my rentals. I manage them, so I see the people face to face. I do background checks and get employment info. I have rented to self employed people with no issues. 

@Cameron Marmon you are definitely within your right to ask for proof of income. I actually always have a list of items that I request from each applicant ahead of time. See my list below. Whether or not you accept this tenant you should think about creating a similar list and provide it when asked. Sounds like your broker is more concerned about closing the deal but remember it is you who has to deal with the tenant afterwards. I don't use brokers for that exact reason. I want to meet the tenant myself and ask them questions. Often it is not the actual response but the manner in which they respond that makes me accept or reject a tenant. One more tip: internet is your friend. Google, Facebook, linkedin etc. Maybe he is married and wants to get an apartment for his "girlfriend" that's why he is hesitant to provide the info. If this guy is running a restaurant, check their Yelp reviews. They might be going out of business if their patrons dislike them. Also, getting a speeding ticket is one thing but it should not appear on any record if it is paid on time. If it appears on background check that's a red flag to me. If you are not completely confident in your choice - reject the application. You will be kicking yourself if you didnt follow up on the red flags. It could still happen that after all your questions are answered to your satisfaction, the tenant turns out to be bad but at least you can than feel better that you don't suck as a landlord and it is actually is the tenant that is bad. You did everything you could. Hope this helps. > 1. Completed rental application > 2. Government issued Photo I.D. > 3. Pay stubs (last 2). > 4. Tax return with W-2 Form for the lastest year. > 5. Bank statements (last 2). > 6. Credit and background check authorization.

Maybe you focus on tax returns because your a lender.. most folks don't know how to read them.. mine are about 400 pages LOL 20 some LLC etc etc.. good luck with those.. I would think the front two pages is all you need.. did they make money and did they pay tax.. bank statements sure thing.. and or maybe you get a monster security deposit and fisrt and last and maybe a month or two more..

stated income is stated income..

I always state mine at a fraction of my true income.. folks simply don't believe it in the credit world.. when the person asking for your income makes in a year what I make in a month.. LOL.. so why go there.

Originally posted by @Jay Hinrichs :

Maybe you focus on tax returns because your a lender.. most folks don't know how to read them.. mine are about 400 pages LOL 20 some LLC etc etc.. good luck with those..

 I do not particularly envy your residential non-commercial lender. 

We have a giant conference table in my office. We work with a lot of self employed folks.

- Percentage of time it's used for "conferences" or meetings: 5%

- Percentage of time it's used for lunch: 15%

- Percentage of time it's used to sit across from nervous first-time homebuyers and go over everything: 5% (it would take a big family to warrant use of the giant conference table)

- Percentage of time it's used to spread the tax returns of someone like you out all over it to try to make sense of it all: 78% (the overlap is due to eating lunch with the tax returns sprawled out in JUUUUST the right order, and don't you dare touch them, or I'm locking the door next time)

Maybe conference table size is a valid approach for self-employed folks to vet residential lenders.

Suggest you look at other candidates. You need to believe in your conviction.

Thank you all so much for the replies!!! Great advice and guidance.

@Cameron Marmon , I'm curious: how did you select your Realtor? My viewpoint is: if you don't trust THEM to find you a suitable Tenant, then you should go back to the drawing board, to select a Property Manager who you WILL trust!

I reckon you shouldn't even need to know who your PM ends up selecting as your Tenant. [Micro-manage much?]

@Chris Mason   not to get too off track of the thread.. ( yes I am learning BP is not all about Jay).. however you can appreciate this.. I had what I  thought was a slam dunk loan for a local bank I wanted to start a relationship with.

new build in Lake Oswego I owned the lot free and clear I paid cash for it. 300k.. I wanted 300k construction loan ( this is one of the bigger construction loan lenders in our market.. house sells for 800k.. so really nice safe loan to start our relationship.

I bring what he ask for 2 years tax returns credit etx.. I get turned down.. Reason.. he said it would take him too long to underwrite me and its simply not worth it for a 300k loan.. If I wanted 5 million on a subdivision then come back that would be worth his time.. LOL.. took it to my normal bank had the loan in a week or so..

have not gone back but I might I got a big one lined up here in Oregon he may want to look at.

like I said tax returns for self employeed unless your in the industry like the OP are greek to most.

Your criteria should be set for all applicants.. what you require for verification from one should be for all. Your application for credit inquiry should maybe state additonal financial records may be required for the previouse 2 years.

then there is no question and your free to ask what you want, but a good credit report should in most instances be sufficient with copy of last payroll stubs.  So if self employed you'd be within your criteria to ask for additional proof of income. 

Originally posted by @Jay Hinrichs :

@Chris Mason  not to get too off track of the thread.. ( yes I am learning BP is not all about Jay).. however you can appreciate this.. I had what I  thought was a slam dunk loan for a local bank I wanted to start a relationship with.

new build in Lake Oswego I owned the lot free and clear I paid cash for it. 300k.. I wanted 300k construction loan ( this is one of the bigger construction loan lenders in our market.. house sells for 800k.. so really nice safe loan to start our relationship.

I bring what he ask for 2 years tax returns credit etx.. I get turned down.. Reason.. he said it would take him too long to underwrite me and its simply not worth it for a 300k loan.. If I wanted 5 million on a subdivision then come back that would be worth his time.. LOL.. took it to my normal bank had the loan in a week or so..

have not gone back but I might I got a big one lined up here in Oregon he may want to look at.

like I said tax returns for self employeed unless your in the industry like the OP are greek to most.

 That's actually perfectly normal for commercial lenders. Common sense can and will prevail... as long as you're trying to go $3m into debt, not $400k into debt. For ones that can't go residential, I send them over to a commercial LO who will only entertain my $300k scenarios on a "for you" (meaning, me) basis because I also send her the $3m scenarios. My business model of working with investors wouldn't work if I didn't also get referrals to friends/family doing normal/easy stuff, I sometimes joke that I need to write "I do easy ones, too" on my forehead. 

1. Trust your instincts

2. Get rid of your agent. His advice is not good, and you don't need him. You can easily find a tenant by using online ads and background check company.

3. Credit history doesn't mean much to me, most of my tenants don't have good credit but they are still good tenants. However, I do care about income, they need to show you proof of income. If they can't, move on to get another tenant.

Simple as that.

Proof of an LLC (state web site search) or business license along with 2 months deposits in a business account would suffice for me. Heck, I have a tenant who owns a construction business and was a multi millionaire before the crash. I even verified the house he used to live in, a multi million dollar estate fit for Bill Gates. But I didn't ask him for much else, though in the future, I would ask for proof of a business license and deposits in a business account...

I will probably be a little bit of an outlier here but that's OK. How deep you go depends a lot on where you live and what you collect on the front end. Where I live, if you get first/last/deposit, you can have someone gone way before you run out of money. If you are timely you can actually have someone out before the month is up. From that point of view, I don't particularly care where they get the rent from - if everything else checks out well (2 DUI's would be a flag for me as someone who apparently has a drinking problem), I don't really worry too much about it. I have never asked for anyone's tax returns, nor would I. 

If I have any doubts about their ability to be a good tenant, then I wouldn't bother trying to change that doubt by asking for over-the-top information. People who have good credit, no evictions, no police records, and know how to present themselves as normal people, without any red flags on their applications, usually don't turn out to be psychos. Your applicants have kind of failed the test in 2 ways:

1. They can't follow instructions by completing the application (I wouldn't have even processed the application);

2. The guy has a record of DUI, which shows a possible alcohol addiction and a complete lack of judgment. 

So to recap: I wouldn't ask for nearly the amount of stuff you are asking for, but this guy wouldn't have made it that far in my process anyway. 

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