15 Ways a Renter Can Show Proof of Income

Written on April 1, 2017 by , updated on January 2, 2018

I am a banker by day and real estate investor by night. For over 15 years, I have been verifying income for potential tenants because I know that people tend to overestimate how much they can afford.

A classic example of this is when people state that they make $50,000 a year, but after taxes, insurance, and 401K contributions, the net amount they end up with is a lot lower.

Most renters don’t know how much rent they can realistically afford.

In my experience, renters are not maliciously trying to inflate their income; they just don’t consider the effect debt has on their actual earnings. You, however, still need to verify that they have the ability to pay. If you don’t question their stated income, you may not be able to make an educated determination. Again, people often think of gross pay without considering net earnings after expenses.

I cannot overstate the importance of verifying income by doing some basic affordability math to insure the potential renter can afford your rental property. From my experience, lack of funds is the number one reason for eviction, and you can avoid that by verifying income before they move in.

Related: Build credit history just by paying your rent

15 Ways to Verify an Applicant’s Income

1. W-2 – Income Statement

This standard document provides proof of income the government uses to verify income for tax purposes.

  • Pro: This document is produced by an employer and is totally reliable.
  • Con: Most renters don’t have this document readily accessible. Additionally, it does not give an up-to-date picture because it does not account for raises or promotions.

2. 1099 – Miscellaneous Income

The IRS Form 1099  is the document used for the self-employed.

  • Pro: This tax document is easily verified.
  • Con: A self-employed person could have multiple 1099s, and you cannot verify if work, and therefore income, will remain steady throughout the year.

3. Federal Income Tax Return

The IRS 1040 (Individual Income Tax Return) is my personal favorite for verifying income because it’s the most comprehensive. It is a complete document, whereas the potential tenant might not remember all sources of income.

  • Pro: Tax returns never overstate someone’s income, and this is a legal document.
  • Con: It could be hard for tenants to find this document, and it’s a snapshot that may not be totally current.

4. Letter from Employer

This is usually easy to get for tenants. And if the employer gives a reference to the tenant’s work ethic you have increased your comfort level.

  • Pro: Current information and the employer can give some qualitative feedback on the potential tenant.
  • Con: Can be easily forged. Some tenants can open a Word document and add the company’s logo.  I usually call and thank the person who wrote the letter to verify they actually wrote it.

5.  Social Security Statement

  • Pro: Government income that is very stable. Easily verified, consistent, and usually not taxed.
  • Con: Can be stopped if Congress changes distribution rules.

6. Pay Stub

Tenants usually get this document every pay period.

  • Pro: Easy for a tenant to find and is current.
  • Con: Need to verify the document with the employer.

7. Bank Statements

  • Pro: Very current information and also tax adjusted.
  • Con: Intrusive for the tenant and might not be current if tenant has non-traditional income. A good example of this is a tenant who is a commission-only salesperson and shows you only one great month.

8. Annuity Statement

An annuity is a contract between a person and an insurance company where in exchange for a lump sum of cash you are promised a steady stream of cash-flow.

  • Pro: Easily verifiable and is usually consistent income.
  • Con: This money usually has an end date. You should read the annuity statement’s date of expiration.

9. Pension Distribution Statement

This statement on your tax return is called a 1099-R.

  • Pro: Usually a great source of income that is consistent.
  • Con: Tough to differentiate monthly distributions versus annual distributions. Also, the pension can change the distribution amount.

10. Workman’s Compensation Letter

This letter should be issued either by the insurance company or the court awarding the compensation.

  • Pro: Easily verifiable.
  • Con: Usually there is a duration for this type of income. You should read the annuity statement’s date of expiration.

11. Court Ordered Awards Letter

This is a document produced by the court system showing a mandated payment.

  • Pro: This is a court-ordered mandate.
  • Con: The court order can be appealed or at least stalled for a significant amount of time.

12. Interest and Dividend Income

This can easily be found on the tax return or a brokerage statement. On your tax return, there will be a 1099-INT and a 1099-DIV.

  • Pro: Very reliable income.
  • Con: Usually not enough to make a material difference.

13. Severance Statement

This is a document if somebody is laid off.

  • Pro: It usually entails a large cash deposit so the tenant can afford several months of rent upfront.
  • Con: This is usually a one-time influx of cash, which you can’t count on for ongoing rent.

14. Proof of Bonus/Incentive Payments

You definitely want to get documentation for commission-based tenants, like real estate agents and mortgage brokers.

  • Pro: Commission-only tenants can have great income and can be great tenants.
  • Con: Very hard to prove that this income is reliable.

15. Unemployment Statement

A government document that is generated by your state unemployment office.

  • Pro: Guaranteed income from the government.
  • Con: Usually unemployment income runs out at some point.


  • Verify that potential tenants are still at the job they listed and that they plan to stay on the job.
  • If potential tenants don’t have enough income, and you still wish to rent to them, ask for a cosigner. You would then need proof of income from the cosigner.
  • Make sure the renter can also afford the utility bills.

Rent-to-Income Ratio

Cozy Income vs. Rent Calculator

The most commonly accepted way of qualifying an applicant (financially) is to calculate the Rent-to-Income (or RTI) ratio.

The industry standard is that the total monthly household income must be 2-3x the monthly rent.
For example, if the monthly rent is $1,000, then the household must have $2,000 to $3,000 in documented income per month.

If you use Cozy to collect online rental applications, you’ll see an income calculator, which does this analysis for you. Cozy makes it easy for me to see if the household (including all roommates) are qualified together.

Rent Coverage Ratio

An alternative (and more detailed) way to tell if an applicant is qualified financially, is to calculate the rent coverage ratio. Here is how calculate rent coverage, using an example:

Verified monthly after-tax (net) income: $3,800

  • Rent: $1,800
  • Utilities: $200 (estimated)
  • Cable: $120 (estimated)
  • Cellphone: $100 (estimated)
  • Car payment and insurance: $400 (estimated)
  • Renter’s insurance: $150 (estimated)
  • Groceries: $150 / per person

Total Expenses: $2,920

Rent Coverage Ratio: After-tax income of $3,800 / Total Expenses of $2,920 = 1.3

This means that for every $1 in expenses this tenant has $1.30 in cash flow to cover the expense. That is a good healthy margin.  I try to keep my minimum rent coverage ratio at 1.30 or higher.


This article gives you a comprehensive list of ways to verify income. We all want to find good tenants and assure a good experience for ourselves, our clients, and the renters we serve. Unfortunately, some people deliberately falsify documents to get approved, and some make honest mistakes. Either scenario might set up a nightmare situation that we all want to avoid. Take the time to be sure the prospective tenant can pay. You will be glad you did.

If you think I left something off, please tell me in the comments!

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