Fairly new to the RE business and not sure how to handle this one, so I am turning to my new "friends" at BP :)
Have an apartment opening up and have a potential tenant who has completed the application process. Yes, I use the BP Smart Move product throught TransUnion. All looks good except I have no way to verify her employment and/or income as she is self-employed. She is separating from her husband, so it seems tax returns are no help because they filed jointly last year so income is combined on there.
I am curious as to how others have handled this if they have encountered this situation. Thanks in advance for any help/advice anyone can provide. You have all taught me a lot so far and I am grateful.
I ask for 6 months of complete bank statements, business and personal and carefully look at all transactions, tax returns helps, but they can also be fakes. Excellent 3-6 year rental references is by far the area I focus on. I always cross reference and verify landlord name and phone number with the that of the owner of the property; many prospective tenants with bad references often use friends to pose as their previous landlords. Not sure about this prospective tenant, I would look carefully at assets, lines of credits, etc. joint and personal, as the separation could trigger a BK and I wouldn't want to be cought in the middle specially if I could find better qualified tenants.
If she is separating from her husband she may not have land lord references. We showed an apartment to a prospective tenant last night that is separating from his girlfriend. They own a house together and she's keeping the house. He's self employed. He is going to provide tax returns for the last few years to verify income. We may also ask for bank statements and if we still have questions we may ask for invoices or 1099's that his customers issued to him. He said, "My income is all 1099." so he should have 1099's that show he is getting paid.
I have called clients of independent contractor's to verify their work and quality of work and potential for future work.
Most times self-employed types end up falling by the way-side as it is often a smoke screen for illegal or non-existent income. Once they realize you are serious about determining their ability to pay they melt into the shadows.
Thanks to each of you for the insights and tips. The last thing I want is a tenant that doesnt pay. How would I explain that to my wife??????
Russ, all great tips above. Other ways to mitigate rental loss are to ask for an additional deposit if your law allows, and/or to ask for a co-signer.
To get comfortable that they really do have a business, see if they have a website or other advertising you can see. We had an artist apply, and found it very odd that he didn't have a Pinterest or web presence. I could not get comfortable that he was not a drug dealer.
Does her husband have a W-2 job If so, get the tax returns and W-2 copies and you should be ale to back into her contribution to the income.
Just keep digging and asking until either they give up or you get comfortable. Good luck!
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As a previously self-employed tenant and soon-to-be landlord, I feel uniquely qualified to answer this question (though I realize I'm a bit late)!
I sometimes encountered trouble with my applications because most landlords simply don't have any idea how to qualify a self-employed tenant. What I would always offer to provide—and was always more than sufficient to prove myself—were:
- A copy of my previous tax return. Even if a couple files jointly, self-employed income is reported on Schedule C, and there should be a separate Schedule C for each business, so unless a separating couple shared a business, you should be able to get a good idea of profit/loss from the Schedule C.
- Proof of business accounts (a recent statement). A legit business has it's own bank account(s). If your self-employed applicant doesn't have a business bank account it doesn't mean they're lying about their income, but it probably means they're not a very organized business owner!
- Proof of reserves. Probably not every self-employed person is able to do this, but I would always offer a recent statement from all my accounts to show that I had ample funds in reserve to pay rent even if my business went belly up.
As a self-employed guy myself, I would happily rent to another self-employed person as long as they proved they had a legitimate business because, in many cases, the self-employed are far more resilient financially than many folks with traditional jobs.
Think about it. If I have a business with 20 clients, I would have to have many of my "bosses" fire me before my income is in trouble. A tenant with a traditional job could look great but get fired/laid off one month into their lease and you'd be wishing you'd rented to the self-employed person!
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