Should You Ask Your Tenants for Proof of Income? 5 Pros and Cons

Deciding whether to request proof of income from tenants can be a pivotal moment in your leasing journey, balancing the scales between due diligence and tenant privacy. This practice is not without its complexities, presenting both clear benefits and potential drawbacks. 

Whether you’re a first-time landlord or managing an extensive portfolio, understanding these pros and cons can guide you in establishing protocols that nurture financial security while being mindful of tenant concerns. Let’s delve into five pros and cons of asking for proof of income. 

The Pros and Cons of Asking for Proof of Income 

Here are the 5 pros and cons of asking for proof of income. Keep in mind that all of the cons can be mitigated with prior planning and research into a tenant’s income and past occupancy. 

Pro 1: Financial Reliability

Ensuring financial reliability is a cornerstone of a successful landlord-tenant relationship. By asking for proof of income, you establish from the outset that prospective tenants are capable of fulfilling their rent obligations. This step significantly decreases the risk of delinquent payments. 

Plus, it can offer you solace knowing that rent will likely arrive on time each month. Not only does it vet tenants’ ability to pay, but it also serves as the first checkpoint in building a trustworthy connection between you and your tenants based on mutual financial transparency.

Con 1: Additional Administrative Work

When you decide to require proof of income from your tenants, be prepared for the extra administrative responsibilities that follow. Collecting, verifying, and storing these documents, such as pay stubs, bank statements, or tax returns, will demand time and attention. 

This process also obliges you to maintain a secure system for handling sensitive information, which adds another layer of responsibility. Moreover, you’ll need to manage the duration to keep pay stubs and other financial records in compliance with state laws and regulations.

Pro 2: Income Verification

Authenticated income verification forms the bedrock of a sound tenant screening process. By requesting concrete proof, you ensure that potential renters meet the financial requirements for leasing your property—typically earning an income that is three times the monthly rent. 

This benchmark helps in maintaining housing affordability for tenants while safeguarding your investment from potential loss. Implementing this step protects you and demonstrates to tenants that your management operates with clear and equitable standards across the board.

Con 2: Privacy Concerns

The request for proof of income can sometimes be a red flag to tenants who are sensitive about their personal information. With growing concerns over data breaches and identity theft, individuals are becoming more cautious about where they share financial details. 

As a landlord, you need to respect these concerns and ensure that any information provided is handled with the utmost confidentiality and security. However, this apprehension can inhibit some potential renters from applying at all, which might limit your pool of great applicants.

Obtaining proof of income provides a layer of legal protection for you as a landlord. In the event of payment disputes or eviction processes, having documented evidence may prove invaluable. It demonstrates that you took proactive strides to verify the tenant’s financial capability. 

Such due diligence can be instrumental in court if you’re forced to justify your decisions to evict or actions that attempt to quicken eviction. Adhering to this practice not only saves potential headaches but upholds the integrity of your leasing process in the eyes of the law.

Con 3: Variable Income Challenges

Tenants with non-traditional or fluctuating income streams, such as freelancers and entrepreneurs, often find it tricky to provide proof of steady earnings. As a landlord, this places you in a difficult spot, but know that freelancers can be very reliable renters.

After all, who’s to say that an employed renter won’t lose their job the month you rent to them? And if documentation is an issue, know that you’re free to ask for alternative paperwork, like previous years’ tax returns or client contracts, to assess their financial stability.

Pro 4: Professional Standard

Setting a standard is integral to your reputation as a landlord. When you ask for proof of income, it indicates that you adhere to a disciplined and fair approach to managing your properties. This practice instills confidence in prospective tenants about the caliber of their landlord. 

It can help attract quality tenants who value organization, fair renting terms, and professionalism. They’ll know what to expect right from the onset, which lays the groundwork for an orderly and transparent rental relationship, enhancing trust on both sides from the start.

Con 4: Possibility of False Documents

You have to be absolutely sure that the document your potential tenants provide isn’t falsified. It’s all too easy for tenants to do this, but there are ways you can check. First, ask your tenants for bank statements (with account numbers blacked out) that are printed from the bank.

Second, ask for an employment reference or a financial assistance letter. Together, both of these should confirm that payment is consistent and legitimate. Background and credit checks or references from previous landlords can also be helpful if you need that extra bit of security. 

Pro 5: Filtering Candidates

Requesting proof of income serves as an effective filter in the tenant selection process. It efficiently narrows down the pool to candidates who can afford the rent, allowing you to focus your attention on those likely to be financially reliable throughout their tenancy. 

This step in vetting prospects also discourages applications from those who don’t meet your rental criteria, saving you valuable time and resources that should be spent on your business. Ultimately, it’s a straightforward approach to identifying serious candidates immediately.

Con 5: Risk of Discrimination Claims

While it’s very unlikely that a potential tenant can file a discrimination claim in your state for wage-related reasons, you should be careful of how you approach the topic. It’s never a good idea to state the reason why you declined a tenant’s application, even if it’s lawful.

For example, say every potential tenant has the means to pay the rent, but you take the person who makes the most money because they’re a “sure thing.” If you state you gave the place away to the person who made more, then that’s grounds for a discrimination lawsuit. 

In Conclusion… 

Now that you’re equipped with these insights, it’s time to make an informed decision tailored to your property management style. Your approach sets the tone for your rental business and can be a deciding factor in achieving successful tenancies. So take charge, evaluate each angle, and choose a path that serves both your interests and those of your prospective tenants. 

To ensure you’re getting the best proof of income possible in the industry, check out RentRedi’s Tenant Income & Asset Verification. When you request screenings and income verifications, the tenant pays a total of $49.99. You get TransUnion-certified credit, criminal, and eviction reports. Additionally, you receive a Plaid-certified income and asset verification to provide proof of income.