Understanding Different Income Sources for Rental Applications (And How Landlords Should Evaluate Them)
Verifying income is one of the most important steps in tenant screening – and in fact is our number one concern when we review applications.
Most landlords think the task is simply confirming that tenant ‘makes enough’. In reality the goal is more specific – you’re determining which applicant has income that is stable, predictable, and sustainable in order to cover rent consistently.
Yet not all income is equal.
A salaried employee, a commission-based salesperson, a retiree receiving Social Security, and an applicant living off investments can all be qualified tenants – but the way you verify them is not the same.
This article goes over the different types of income sources and how they affect a tenant's ability to consistently cover rent.
Table of Contents
- Reviewing Traditional Employment in Salaried Income
- Reviewing Commission Income such as Sales or Self-Employed
- Reviewing Retirement Income in Social Security, Pensions, or Disability
- What about Applicants without Active Income?
- Looking Beyond the Income
- FAQs
Reviewing Traditional Employment in Salaried Income
Salaried income is the most common income and, in fact, the 2nd most stable type of active income an applicant can have. These are typically the easiest type of income to verify but there are differences to know about.
Hourly vs Salaried Incomes
Formally known as exempt and non-exempt employees, these are hourly vs salaried employees.
Hourly employees earn a set amount per hour of work and generally have a consistent schedule, but can have deviations that vary their income each pay period. Unlike salaried employees though, hourly employees are eligible for overtime pay which increases their income.
Salaried employees earn a set amount per pay period, which is consistent and often comes with a more predictable schedule.
What To Look For and Review
We recommend requesting at least one to two months of their most recent pay stubs to verify their income and with those documents you’ll want to evaluate four traits.
- Check their monthly total and see if it matches the amount they reported.
- See their year-to-date total and divide it by the number of pay periods to get the monthly average, and compare it to their reported income.
- If hourly, see how many hours they work each pay period and whether it is consistent.
- Evaluate the employer: a large business that offers better stability, or a smaller employer that may go out of business more easily.
Reviewing Commission Income such as Sales or Self-Employed
Commission is trickier to evaluate but is not inherently worse or better than salaried income. Commission income will most often have a small base pay, such as an hourly or monthly rate that is consistent but lower than other employees. The difference in pay is made up of commissions, tips, bonuses, and other forms of income.
Business owners, whether solo-preneurs, self-employed, or in established firms, may pay themselves a salary but are also subject to the risk and reward of a business with variable sales and income.
How to Verify Commission Income
For a salesperson or anyone earning commission, you want to review their salaried income as laid out previously. Request their pay stubs and determine their monthly average which is a combination of salary and commission.
Additionally, we highly recommend requesting bank statements to review for two reasons:
- First, it allows you to see any unreported income they may have, such as cash tips for servers or barbers, that be included in their monthly income not listed on the pay stub.
- Second, it allows you to see if they have strong savings to cover expenses if work slows down for them.
Finally, we recommend asking questions about their industry and employment such as:
- Is it seasonal or tied to predictable cycles?
- How consistent is the work?
- How is commission earned - such as sales, gross margin, tips, etc.
- What was the lowest month of income in the last 12 months?
How to Verify Business Owner Income
Similar to a salesperson, business owners may pay themselves a monthly salary and have pay stubs you should evaluate as laid out previously.
Unlike salespersons, business owners have a much higher risk-to-reward ratio for supplemental income dependent on their business’s revenue, expenses, and net profit from those numbers which can be a monthly or annual bonus for themselves.
Documents to request and review are:
- A profit and loss statement for the year or prior year of the business
- Personal bank statements
- Tax returns for the last one to two years
Key questions to ask someone who is self-employed or runs a business include:
- Does the business pay for personal expenses (car, food, etc) that increases their available funds?
- Does your pay fluctuate each month? By how much?
- How consistent is the work and client base you have?
- What was the best and worst monthly revenue in the last 12 months?
Reviewing Retirement Income in Social Security, Pensions, or Disability
Retirement income is often the most stable and easiest to review. This income source is predictable, recurring, and not dependent on employment. As income is supported by the government, big business, or self-funding, the chance of funds being unavailable is near 0%.
When reviewing and verifying retirement income:
- Match the monthly benefit amount to their bank deposits
- Confirm whether the income source is permanent or temporary
The main concern with this income is not its stability, but whether it meets your rent-to-income requirement, since it is not subject to fluctuations beyond cost-of-living increases.
What About Applicants Without Active Income?
In rare cases, you may find applicants who do not have an active income source and instead live off investments, withdrawals, trust income, or savings reserves.
In these scenarios, the applicant will not meet your income-to-rent ratio as there is no active income, but that does not mean they are not qualified for the property and instead may be the most stable applicant.
It is key to note that assets are not the same as income. Withdrawing funds without a means to replace them does create risk to the stability of rent payments.
Best practices for non-active income, like retirees are:
- Collect multiple months of bank statements and account statements
- Ask what their typical monthly withdrawal has been in the past
- Negotiate multiple months of rent upfront
- Negotiate a higher security deposit
How to Handle Young Adults and Guarantors
Young adults without jobs also fall under this category of non-active income. Unlike retirees with savings, this type of tenant will most often have a guarantor like their parent cover the rent.
Best practices for guarantors
- Require that both the guarantor and the tenant complete their own applications (even if the tenant doesn’t have a job).
- Review if the guarantor has a strong enough job or savings to cover their current expenses + the new expenses of the tenant.
- Ensure the guarantor is named on the lease agreement and signs
Looking Beyond the Income
Income is the first, and often most important, filter in tenant screening but it should never be the only one.
Income tells you whether renting to an applicant is possible, but not that it is advisable. After all, we need to consider all aspects of an application such as:
- Credit score and history of paying debt
- Rental history and recommendations from prior landlords
- Personable fit for the property (number of occupants, cars, interest in the property, etc)
With this in mind, a strong tenant will be a combination of traits that include:
- stable income that can be verified
- manageable debt and responsible credit behavior
- positive rental history
- clear communication and follow-through
- enough financial cushion to handle normal life disruptions
Should you find that tenant for your property, the ‘black and white’ of managing it is handled, and your stress reduces dramatically. The property turnover decreases, rent becomes consistent, maintenance becomes easier to manage, and the property becomes a stable investment for you.
FAQs
Can I deny an applicant because their income is commission-based?
Yes, but only if the applicant does not meet your written income standards or cannot provide verifiable documentation. The income type itself is not a means to disqualify someone.
How should landlords disclose their income requirements?
Best practice is to disclose the requirement on your rental listing, either in the description or other sections if available. Otherwise, you can include it on your pre-screening questionnaire, in person during the tour, or at a minimum on the application process.
How should landlords calculate commission income for tenant screening?
Commission income should usually be averaged over the last 12–24 months, using tax returns, bank statements, and year-to-date income records. Avoid qualifying a tenant based on one strong month, since commission income can fluctuate.
Is hourly income considered less reliable than salary income?
Not necessarily. Hourly income can be very stable if the applicant has consistent weekly hours and steady employment history. The key is verifying average hours over multiple pay periods rather than relying on one high-income check with overtime.
Should landlords count overtime income when screening tenants?
Only if it is consistent. If overtime appears regularly across multiple pay stubs and has been steady for months, it can be included. If overtime is occasional, qualify the tenant using their base hours instead.
What is the most common income verification mistake landlords make?
The most common mistake is relying on what an applicant claims without verifying it. The second most common mistake is qualifying tenants using peak income months rather than a realistic average.
How do I know if pay stubs are fake?
Fake pay stubs often include:
- inconsistent formatting
- employer names that don’t match bank deposits
- rounded numbers or “perfect” earnings
- missing deductions or incorrect tax calculations
When in doubt, verify employment directly and compare deposits against bank statements.
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