How to Verify a Prospective Tenant’s Income

Whether you're a seasoned landlord or just starting in the real estate industry, the process of verifying a prospective tenant's income can feel like traversing a maze. You want to ensure that the tenant can comfortably afford the rent, while also steering clear of any legal pitfalls. In fact, assessing a renter's financial reliability is one of the most crucial steps in the screening process.🔍
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In this post, you will learn the best methods for verifying an applicant’s income and employment, how to determine if someone can or should afford the rent, and some cautionary advice to avoid fraudulent documents. By the end of this read, you'll be a pro at sifting through the financial jargon and spotting a financially responsible renter! 🕵️💼📈
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The Importance of Verifying Income 📊

Asking for proof of income is standard in the rental screening process. It helps you evaluate whether the prospective tenant has a steady flow of income to pay rent consistently and on time. Typically, the golden rule is that a renter's gross income should be at least three times the monthly rent. This ensures that they can comfortably afford the rent while still meeting other financial obligations.
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Automate Verification with Clara

In the digital age, manual verification can be time-consuming and prone to errors. Clara partners with fintech company Plaid to streamline your screening process by providing comprehensive financial snapshots of applicants in real-time. This includes an overview of their income and employment status. With Clara, you can fast-track your verification process and focus on other aspects of your real estate business. 🏠💼
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Plaid verifies a renter's income by accessing their financial account information with their consent. Here's a general overview of how the process may work:
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Direct Link to Payroll

A renter can verify their income by direct linking into their employer or payroll - it's is the simplest and most effective method of employment and income verification. Through Clara, renters can easily link direct employers, payroll providers, gig economy jobs, and government benefits. If they have more than one employer or job, they have the ability to link as many accounts as they would like.
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Upload Tax Documents

If a renter is unable to find your employer within the direct link option, or if they are self-employed, or unemployed, they have the ability to upload a PDF of a document like a W2, 1099 or unemployment statement. Clara will carefully read the forms and populate their renter profile and application with the appropriate data.
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Manual Verification Methods 📝‍

If you prefer the old-fashioned route or need a backup plan, there are several ways to manually verify an applicant's income:
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• W2 Forms: These forms show an individual's annual wages and tax deductions. If your prospective tenant is a salaried employee, their W2 form is a reliable document for income verification.
• 1099 Forms: For self-employed individuals or freelancers, 1099 forms are the equivalent of W2s. They record the income earned from various sources.
• Paystubs: Paystubs provide a detailed breakdown of an employee's earnings, deductions, and net pay. They can confirm both the amount and regularity of income.
• Bank Statements: A bank statement can provide a comprehensive view of an applicant's financial health, including income, expenses, and saving habits.
• Unemployment Statements: If an individual is unemployed but receiving benefits, these statements can confirm their income.
• Letter from Employer: A letter from an employer can verify an individual's employment status and income. It is especially useful for new hires who may not yet have paystubs or tax forms.
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Beware of Fraud! 🚫

While verifying income, it's important to stay vigilant. Fraudulent documents are unfortunately common in the rental industry. Always cross-verify information and look for inconsistencies. For example, a paystub and a bank statement should align in terms of income. If something seems off, trust your instincts and investigate further.
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With Clara and Plaid, fraud detection is built-in throughout the process. Plaid has added out-of-the-box measures to detect document tampering during the income document verification process so that you can verify documents while they run fraud checks in the background. Using machine learning technology, they can identify over 30 fraud signals like whether an original paystub was photoshopped or changed to another name.
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Next Steps 🚀

Now that you're equipped with the knowledge to verify a prospective tenant's income, it's time to put it into action. Remember, this is just one piece of the tenant screening puzzle. Other factors such as credit checks, background checks, and reference checks also play a crucial role.
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So, keep your eyes peeled 👀 and your senses sharp 🔍.
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