Are you hesitant to place a tenant who is self-employed? Do you feel paralyzed by what to do next? Can you feel confident approving a tenant who is self-employed? Let’s take a look at how to screen a self-employed tenant, so you can feel confident that you are getting the best possible renter.
Look at the past Two Years of Tax Returns
Request the applicant’s tax returns so that you get a more complete picture of the applicant’s finances, as well as the viability of their business. Begin with two years’ worth to ensure that they have been making a steady profit. Ideally their income will amount to three times the rent. Be sure to take a look at their profits after expenses. Pay attention to how much of their profits would be available if you had to take this tenant to court.
Look at Credit History
The applicant’s credit history will provide you with some important information. You will be able to see whether your applicant is able to pay his or her bills, and where most of their debt is tied up. You will learn about the history of their business, as well, and get a sense of whether their business is viable into the future. You can also learn whether the tenant has planned ahead for lean times, and whether their personal finances can withstand fluctuations to their income.
Asking for a larger security deposit, as allowable by law, will give you peace of mind. If you accept a tenant who demonstrates the ability to pay the rent, but you still have concerns, the extra deposit can help protect you. This will provide a cushion in the instance that you must proceed with an eviction or covering damages.
Prepayment of Rent
Small businesses sometimes will offer prepayment of rent as an extra enticement to take them on as tenants. This situation does offer you all of your rent up front, which is great. But be aware of the tax implications, and be sure this type of arrangement will not prevent you from evicting the tenant. A prepayment comes with possible complications, so know the risks before you agree to this arrangement.
Is the tenant’s business sustainable over time? Or is this type of business part of a passing fad? You can feel more confident taking on a tenant who is in an industry with staying power. Additionally, search for reviews and ratings of this practitioner. A business with a bad reputation will have a hard time surviving over the long term.
Renting is a popular choice for self-employed individuals, as they may have a harder time qualifying for a mortgage. Small business owners may focus their time on building their clientele and honing their craft rather than settling down as a homeowner. This means that high caliber renters are available from the ranks of the self-employed. As this demographic continues to grow, stay open to the possibility of a self-employed renter, knowing that you can find a great candidate using thoughtful screening methods.