How to assess whether a self-employed applicant is financially secure

What happens when you’re showing your rental units to potential tenants, and you find a great renter, but they say they’re “self-employed” on the application and don’t have traditional work references?

There are some ways you can verify their income and savings, surely, but the last question may come down to how confident you are in their ability to keep receiving rent from them. 

It’s a tricky question that will require some legwork on the landlord's part, plus a bit of old-fashioned faith. 

What kind of person is self-employed?

There are a variety of ways someone can be self-employed. Whether they work from gig to gig as a freelance writer, DJ, novelist, photographer, videographer, jeweller, landscaper, etc.; self-employed people essentially work from cheque to cheque.

This may sound less than ideal, but always keep in mind that self-employed people are usually specialists in their craft and can bring in some big, big paycheques in a perfect world.

How to verify their financial stability

Since you can't necessarily look at sequential paystubs, you'll have to verify a prospective, self-employed tenant a bit differently. Even though a self-employed tenant won’t have a traditional work reference to prove their paycheques, there are a variety of ways an interested landlord can go about verifying their income.\

Request:

• A bank account statement which shows their income
• Copies of their tax filings or tax returns
• A credit check to see if they're in good standing with creditors

Bank statements from the past two or three months will give you a better picture of their average monthly income.

Call their clients and previous landlords

Calling a past client may be the only way to check a self-employed person’s work history and verify the amount they've been paid for a completed freelance project.

Next, calling a previous landlord is a critical step in the screening process, whether the prospective tenant is self-employed or not. Ask old landlords if there was any history of missed monthly payments during the length of their tenancy.

Should you rent to a self-employed tenant?

If you're still on the fence, you can require a guarantor or lease co-signer as one way of covering your bases and holding two people legally responsible for any missed payments.

Co-signers must legally take responsibility for missed rent payments. The co-signer doesn’t have to live with the tenant, they’re just accepting financial responsibility should the tenant default on their rent.

If you're not feeling confident, or your trust has been broken by someone in the past who identified as "self-employed," maybe it's time to look at another prospective tenant.