Screeniing Self-Employed applicants

[Russ M.]

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.

[Tyler Tervooren]

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!