How to Assess Tenants in the Gig Economy

Posted by Michael Miller on March 11, 2019

When you evaluate tenants, do you look at their job history and credit score as two of the key factors to determine their reliability as tenants? In today’s gig economy, where 29 percent of U.S. workers have an “alternative work arrangement” as their primary job, you could be missing out on excellent tenants who will hustle to make sure they pay the rent.

Opening your apartments and single-family rentals to self-employed individuals requires not just a change in mindset but also a slight change in logistics. Rather than requesting W-2 forms or pay stubs, you may need to consider other elements as proof of income. Likewise, you can look for other signs that point to financial stability. But it can pay off in the long run as you fill vacancies in your real estate investment rentals with resourceful, hard-working people who do what it takes to pay the bills and take responsibility for their own success.

How to Evaluate Tenants Who Are Self-Employed

Whether you think of them as self-employed, 1099 contractors, freelancers, or “gig workers,” one-third of the U.S. workforce consists of people who don’t receive a W-2 form each January but still maintain a viable means of income.

How do you assess whether or not they will make good tenants in the absence of a steady job?

1. Bank statements. Just as a mortgage lender wants to know the borrower has cash in the bank prior to closing (and how it got there), landlords can look at bank statements as proof of income for freelancers. Additionally, a freelancer with a hefty emergency savings account is typically a good risk. Freelancers are used to sporadic income and accustomed to saving for times when business is slow. If they have one or two months of rent saved up,

2. Tax returns. Examining tax returns can offer incredible insight into a contractor’s finances. Look for a diversity of income sources and steady or increasing income to show a person who is growing their business.

3. Recommendations from previous landlords. If a tenant made her rent payments on time in the past, especially while freelancing, she is likely to continue to do so. Speaking to prior landlords will also offer insight as to whether the person will make a good tenant, maintain the apartment, and be considerate of the neighbors.

4. Debt-to-income ratio. Does the renter’s income comfortably exceed his or her expenses? In most regions, housing should not comprise more than 30 percent of a person’s monthly gross income.

5. Credit score. A prospective tenant’s credit score can provide some insight as to whether or not he or she will pay rent on time. A credit score should not be the only deciding factor in choosing a tenant. But the elements that make up a credit score, including paying bills on time and not charging credit cards to the hilt, may give a good indication of a person’s overall financial health.

Why Freelancers Make Good Tenants

Even now that you know how to choose a freelancer as a tenant with confidence, you might still have misgivings. It always depends upon the individual but, in general, an independent contractor with a steady work history and well-padded savings account could be less risky than an who could get laid off at a moment’s notice with no safety net in place. Freelancers are accustomed to hustling, and if they lose one source of income, they are likely to work to replace it quickly.

As the gig economy grows, landlords who don’t shift their methods of assessing tenants could be eliminating a highly reliable and responsible tenant pool.

On the other hand, if you know what to look for, you can fill vacancies quickly with bright, energetic people prepared to make positive contributions to the community.

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