Why A Credit Report Doesn't Show You An Accurate Picture Of Your Potential Tenants

Owning rental property is a great way to build your asset portfolio, and passive rental income is always nice to have. However, dealing with bad tenants is typically not quite such a wonderful experience.

The key to renting to a quality renter is, surprisingly, not to rely on just a credit report. While a credit report is a good snapshot of your potential renter's financial situation, there are many aspects of a person that a financial document can never show you. For example, someone can be good at managing their money, but they are secretly hoarders who will never clean your home while they live there. To this end, you will want to do all of the following prior to renting your property to anyone.

Previous Landlord References 

Have you ever hired an employee at work who had a great reference from their last employer, only to find that they are a horrible employee. The same can be said for landlord references. While it would be nice if everyone was honest, the truth is that they are not. Because of this, you should obtain the contact information for the potential renter's previous three landlords. 

While you should contact the current landlord for a reference, you should rank their opinion last when making your decision. Listen to what they say and try to determine if they are being sincere with their words, or if they may be trying to dump their horrible tenant on you.

Take care to listen to what the two other previous landlords have to say. They have no "skin in the game" anymore, so they will be much more likely to give you an honest opinion. Listen to what they have to say and heed any warnings you are given.

You should also be very concerned if your potential tenant will not give you this information. If they claim they do not have any way to contact any of their past landlords, this should be a very large red flag to you that there may be potential issues.

Employment Verification

Not only do you want a tenant to treat your property well, but you also need them to reliably pay their rent on time. For this reason, you should call their employer and verify their income and length of employment. You should also talk to the human resources person and see if they have any concerns about possible lost future income. You never know, they might just tell you that the company is going out of business in the next six months! 

Personal References

While not terribly helpful for honest information, you should always try to get as many personal references from any potential renter as they will give you. This information may end up being useful to you down the road if your tenant needs to be evicted and stops having contact with you. A simple call to their friend, or relative, could help give you some leverage for the renter to contact you.

Conclusion

While a credit report is a nice snapshot of someone's credit situation, it is not the best information to use when making a rental decision Make sure to gather rental, employment and personal references from any potential renters. Call those references and listen to both what they say to you, and what they might imply. Ask a professional management company like East Valley Property Management for assistance, should you desire it.