In the rental real estate business, the type of tenants that get housing at your properties can make or break your venture.

However, you can't spot a good tenant based on race, nationality, religion, gender, family status, or disability, as doing this could cause you legal trouble. The best criteria to adopt are selecting tenants based on their ability to pay rent which is determined by how much they make.

There are several ways of checking if a tenancy applicant can afford rent at your property. Below are some options you can explore.

 

Check Their Pay Stubs

Pay Stubs are documents detailing an employee's pay breakdown from the gross income, statutory deductions, and net pay. An employer often issues them alongside the paycheck at the end of a payment period.

Paystubs act as proof of income for apartment applications but can also be used when seeking a loan from a bank or seeking accommodation. You may need to ask for three or four months' pay stubs to be sure they have a steady source of income.

If your potential tenants have misplaced their pay stubs, you can advise them to ask for a replacement from their employers or use an online paystub generation tool.

 

Ask for Their W-2 Forms

If you want to verify whether a tenant has had a long-term steady flow of income, you can ask to see their previous years' W2 tax form. The W2 acts as an end-of-year sum of pay stubs and is issued by the employer detailing their earnings and tax deductions for the year.

All employers are required to issue their employees with the W2 before or on 31st December every year. If a potential renter was employed in the previous year, the W2 should give you all the necessary income and tax payment information.

 

Bank Statements

A bank statement is the most straightforward way of verifying a potential renter's income. This is especially true when the applicant is self-employed because there would be no way of getting their pay stub.

A bank statement details their deposits, withdrawals, expenditure, and money in the bank. This information can help you establish if a potential tenant can afford rent at your property. The best approach is to ask for a three to a six-month bank statement.

While this option is the most straightforward, some potential tenants may find it an invasion of privacy since it shows details of things purchased through credit cards. Therefore, it is best to give them another option if they do not want to share a bank statement.

 

Employer and Former Landlord References

Financial documents can help tell a story about a potential tenant. But they cannot match another person that knows the potential tenant. So you may want to ask for contacts from their former landlords or their employer.

Calling their former landlord can help identify the reason for their changing housing. If they left on good terms, there should be no problem allowing them tenancy.

If they had problems paying, you should consider that a red flag and investigate further. Calling the employer helps verify that the details of employment they offer are correct.

 

Check Their Credit Score

A credit score is a numerical figure from 300 to 850, which acts as an expression of a person's creditworthiness. If a person has excessive debts or is always late paying bills, they will have a poor credit score and may have problems paying their rent.

Anything above 700 is a relatively good credit score. Anything below that is debatable, but the credit score should not be the sole determining factor when vetting a potential tenant. It works best when matched with other factors mentioned on this list.