How to verify income for self-employed? First time landlord needs help!
Member since 2011 · 9 posts · 2 votes
Hello, I am a newbie landlord and is wondering how to verify income for self-employed people? Tax return? Please advise!
I'm sure that there would be executive rentals and commercial properties where a business owner will provide last 2 years tax returns and current income statement. These should be gathered directly from the IRS or the accountant.
If there is a CPA, you could send a verification of income for the past two years, as a letter and have them fill in the blanks and sign it and mail it back to you, then follow up with a phone call to ensure they mailed it.
For smaller business folks, lawn care guys, construction etc. I can look at a credit report, last 6 months bank statements and credit card statements and see how they live. If there are lots of ATM withdrawls for $20 and charges for hamburgers, they are poor money managers. If I see charges at Judy's Bar 4 times a week, they have a problem.
I also ask for three business credit referrences and send an authorization to release credit information and follow up with a phone call. If the guy is in the lawn business and has a small acount at Joe's Lawn Mower Shop, that is probably not reported credit.
I also ask for a business card. Many printers in my area will verify the business before printing cards. A quick search on line to the Secretary of State tells me they have filled and are in good standing.
So your perspective tenant simply signs some verifications and authorizations and gives up some statements, not a big deal, if it is, you don't want them. Good luck
Tax return is a good method. There's a form to get it directly from the IRS, but I've not tried to actually do that.
Also, verifying current landlords and their rent will give you some information.
Don't accept anything from them, some people can easily produce fake tax returns. I had a tenant once say he's a professional poker player, plays poker on the internet and gets paid from an offshore account, but he said he doesn't include much of that income when he files his taxes, he wanted me to trust him he could make the rent...
I now request the annual 1099 (equivalent to W-2), certified copy of IRS-1040, and letter from accountant (preferably CPA) which should state nature of business and income holdings, annual income expected for current year, amount of annual personal income applicant takes from business, and bank references, credit report, etc.
I now request the annual 1099 (equivalent to W-2), certified copy of IRS-1040, and letter from accountant (preferably CPA) which should state nature of business and income holdings, annual income expected for current year, amount of annual personal income applicant takes from business, and bank references, credit report, etc.
So basically you should just have a notice that says "if no W2, need not apply".
No one would do all that, they will just move on.
Have them get an IRS certified copy of last two years of returns. I believe this can be obtained by dialing an IRS automated line. It might take a couple of weeks to get though.
Then perhaps last two tax returns certified by their CPA?
I'm sure that there would be executive rentals and commercial properties where a business owner will provide last 2 years tax returns and current income statement. These should be gathered directly from the IRS or the accountant.
If there is a CPA, you could send a verification of income for the past two years, as a letter and have them fill in the blanks and sign it and mail it back to you, then follow up with a phone call to ensure they mailed it.
For smaller business folks, lawn care guys, construction etc. I can look at a credit report, last 6 months bank statements and credit card statements and see how they live. If there are lots of ATM withdrawls for $20 and charges for hamburgers, they are poor money managers. If I see charges at Judy's Bar 4 times a week, they have a problem.
I also ask for three business credit referrences and send an authorization to release credit information and follow up with a phone call. If the guy is in the lawn business and has a small acount at Joe's Lawn Mower Shop, that is probably not reported credit.
I also ask for a business card. Many printers in my area will verify the business before printing cards. A quick search on line to the Secretary of State tells me they have filled and are in good standing.
So your perspective tenant simply signs some verifications and authorizations and gives up some statements, not a big deal, if it is, you don't want them. Good luck
Thanks for all the great suggestions! On a related topic, I called a potential tenant's employer for salary/wage verification and was told normally they get a wage verification form from folks like me to complete. Does anyone have a sample form that I can adopt?
Try this:
http://www.treasurer.ca.gov/ctcac/compliance/empverify.pdf
Also, if you need additional forms and anything related to landlording, check out the LPA.com and their excellent library of forms (http://www.thelpa.com/lpa/forms.html
Self employed is often AKA UN-employed! At the end of the day, look how often the tenant moves. If they have been at the same place for a few years and have a good reason to be moving, then you are showin some stability. I never get too crazy on underwriting a tenant, you will just find a ton of reasons not to deal with them.
If you really want to see how much they have, just ask for 90 days of bank statements. You will see where they should have been paying their rent to their current landlord, and see how many bounced checks they have each month. This will give you a very clear picture of who you are gettin in bed with.
Finally, do not trust the reference from the current landlord, they will tell you anything to get them out of their place. Call the landlord before last, they will be brutally honest! Make sure you cross reference the landlords name and number with public records to make sure he or she is the property owner. Tenants have been known to lie and give you their buddies number! LOL! Good luck!
:mrgreen:
I got a new applicant today that claims she is a recently divorced mom with two kids. She is a school teacher but salary from teaching alone is not enough to pass income criteria, but If I add the amount of child support she gets from her ex-husband, then she qualifies, the question is how can I verify the child support income?
@RobTheHouseGuy1, you are right on with everything in your post! I've learned the hard way to do what you've suggested. I put much less emphasis on the current landlord and more on the previous. If a 30something says they've only lived with family, I move on. I also check the property tax records as to who owns the property. I've caught 2 applicants in lies on that one.
When I call a listed landlord, I ask first how they know the applicant. As someone on BP once pointed out, if you ask them how, then if they're a fake, they will get confused whether they are "playing" the landlord, the employer, the friend, the business reference, or whatever. Make them tell YOU.
For self employed, I usually would ask for two months security deposit because business being good today does not mean it will be good tomorrow. Also want to see their bank account not just tax returns because sometimes tax returns can be very trick with having some tax items that do not affect cashflow.
Ask the tenant for some form of verification. If it is court ordered, she should have a legal document and should be registering in her bank account as often as she says it comes in.
Or in certain parts of the city: drug dealer...
How do you see from the bank statements if a check bounced? I've never had one of my checks bounce, so I could be wrong, but isn't it that you just get a letter from your bank that the check bounced, they take the money back, you are SOL and they charge you even extra money?
I recently had a tenant's check bounce, and he claims that he wasn't aware of it. He may be BS-ing me, but I can see how it never shows up. On the other hand, if you are on such a tight budget that your rent check bounces and your avg. daily balance is not in the 5 figures, you will most likely known if that darn landlord got his money or not :roll:
A bank statement should show all FEES that were incurred during the statement period, including FEES for overdraft protection being used as well as NSF charges.
this is a little disturbing for me because I am looking to move within the next two months and I am self-employed. I searched on what I need to provide to prove my income since I don't get a paycheck check every two weeks.
I would hate to not get a home because I make small withdrawals or if a landlord feels I eat out to much. That has nothing to do with Me as a tenant. My credit report showing I have no evictions or broken leases is more important than what I spend my money on. I have copies of all my rental payments. I recently pulled my credit report and have a positive rental history.
Being that I file my own taxes and do not use a CPA, this all just makes me wonder. I understand you-all have to proteprotect yourself and your property but bad tenants also have good credit and get a regular paycheck.
Another point is finding out what their business is , and how long they have been in business . I want a minimum of 2 years in business and a maximum of 5 years . Why the maximum ? If they havent gotten their act together by 5 years in business and purchased a house , business is not stable . ( bought my first house at 23 after 2 years of cutting grass and had it paid off 5 years later)
Tax return reports last years income. Landlord need to know if applicant's current income is sufficient to cover rent and other expenses. Typically, Landlord wants tenant's monthly income before taxes to be approximately 3 times the monthly rent. For example, if rent is $1,000 than tenant's monthly income should be at least $3,000 to cover rent and other personal expenses. How do you verify self-employed person's income? Request last 3 months of personal bank statements (not business bank statements because the tenant's business is not signing the lease, the business owner - the person is signing the lease so you want to verify his personal income). If the business owner does not have personal bank account in which he deposits personal income, than the business owner's income can not be verify and therefore do not rent to this person. Also you do not want his business bank account because the business has their own expenses and as stated before the business is not signing the lease. Also keep in mind the the business should be established for at least 1 year because of the high risk of new business failing. There are more details that should also be considered...
Tax return reports last years income. Landlord need to know if applicant's current income is sufficient to cover rent and other expenses. Typically, Landlord wants tenant's monthly income before taxes to be approximately 3 times the monthly rent. For example, if rent is $1,000 than tenant's monthly income should be at least $3,000 to cover rent and other personal expenses. How do you verify self-employed person's income? Request last 3 months of personal bank statements (not business bank statements because the tenant's business is not signing the lease, the business owner - the person is signing the lease so you want to verify his personal income). If the business owner does not have personal bank account in which he deposits personal income, than the business owner's income can not be verify and therefore do not rent to this person. Also you do not want his business bank account because the business has their own expenses and as stated before the business is not signing the lease. Also keep in mind the the business should be established for at least 1 year because of the high risk of new business failing. There are more details that should also be considered...
Unless the person is a sole propritor ( cant spell tonite) They may be using the same account for their business .
Wow... Just... WOW.
You guys are unbelievable! Have you been burned so badly that you have to treat everyone who might not be living your "perfect" idea of life as unworthy?
I'm a single female about to hit 50, and I AM self employed! I have held the same job (web design) for a company that hosts "advisor" accounts (I have nothing to do with what they do, I simply create pages for them for a fee) which I have worked at since 2005!
It is a very lucrative business, and I also do other things... I'm a musician (NEVER play at home, I have a studio for that when I need to rehearse or record) I am also a skilled videographer (I film shows for other musicians whose websites I also produce and maintain.
I do all of this without a specific business title, because it's free lance. I'm listed as an "advisor" on my main job because well, that's how they do it. I have no control over that. I just do the job, get my commission, deposits in my PERSONAL bank account (200 dollars a day usually or more) and pay my bills and rent.
My current landlord loves me, he doesn't want me to move. However I don't want to live in this area anymore. He even offered me another apartment cheaper than the one I have because he raised my rent 500 dollars in ONE MONTH after not doing so for 5 years... His logic is 100 dollars for every year I've been here. Oh well. I can afford it, but I choose not to be here anymore.
I also have a 54 year old sister with Autism and another Illness I won't mention due to HIPA laws. She is FUNCTIONAL but unable to work due to not comprehending basic commands someone might give her at even a simple mcdonalds job. She is recieving LIFETIME payments (Meaning she will NEVER be cut off, because of her second illness being one she will eventually DIE from no matter what. I am technically her landlord, because most of the ones I've dealt with including my current one had no interest in accepting money from "welfare" as they call it... So the city pays it to ME and I give it to him. I show proof of this when her worker comes to do a home visit. She gets up to 800 a month just for the rent, that's how this particular AID works. Even if she didn't I make more than enough to cover us. If any landlord was willing to accept her half directly, I'd be happy to do that.
For the major job, I get what's called a 1099k form, and it shows how much I make every year. I also produce my bank statements showing ovet 1300 dollars every week. I have NEVER bounced a check, nor will I, as I pay "cash on the barrel" as Charles Ingalls from Little house used to say. I only have a single credit card used for car rentals on occasion since I Don't drive because of too poor eyesight to get a DL, so sometimes if I want to go away I ask a friend to drive and I pay for the car. I keep my monthly charges on that card under 10% of my credit limit, and I ALWAYS pay every charge IN FULL as soon as it hits the card, even BEFORE it's due!
It's upsetting to me that I have such a good income, pay my bills, have lived in the same apartment for 4 years, have always paid on time, as my receipts will show, and yet some of you would judge a person based on what they spend their money on... WOW... If I am too tired to cook so I order a lot of takeout, how does that make me a bad tenant? If the place I order from happens to be a local PUB (I do NOT drink ANY alcohol by the way) that serves good burgers, does that mean I'm a drunk??? Geez, guys, come on!
OH, and to the guy who said "I bought a house at 23"... Good for you, but you have NO RIGHT to judge a tenant for not doing so. I don't want to own a home, been there, done that with my ex husband and children. I'm old, divorced, and a grandmother, who plans to retire in about 15 years. Why would I want to buy a home now?
Wake up guys, please... In this day and age it is possible to run your entire LIFE via computer... Even get your groceries by shopping online. For someone like me, with physical ailments but a sharp mind, that has been a godsend. Please don't penalize a person for being DIFFERENT than everyone else.
Based on what you've heard, would YOU rent to me with the proper documentation?
I don't rent to self employed. I won't tell anybody, just a rule of mine
For those wondering, the IRS has form 4506T (and plain 4506 as well) that you would have the tenant applicant complete to have the IRS provide the tax return info that was given to the IRS; and in conjunction with that, you request the tenant applicant to give you hard copies of the tax returns as well. Use the info given by the applicant's hard copy, and verify that against the info given by the IRS; approval of an applicant should be contingent on the info from the applicant hard copies to agree with the info received by you from the IRS. Asking for two years is quite typical for this.
Hello, I am a newbie landlord and is wondering how to verify income for self-employed people? Tax return? Please advise!
Hello Kevin,
This is an excellent question! When someone applies for one of your units and you see they are self-employed, it is easy to get nervous about what that even means.
I can tell you from experience, we have had many people who rent units who work from home, or are self-employed (either at home or their own business) You may ask for tax returns and monthly bank statements. Statements are most likely the best to look at. It will show their monthly deposits and you can determine (on average) how much they are depositing every month into their bank account.
There may be road blocks and make sure to keep an eye out for them. If they don't deposit the money at all, or their income is all over the board, you may want to reconsider. It is important (like any job) to make sure they earn enough money to pay all of their bills, including their rent.
Please let me know if you have any questions!