Risky tenants need co-signers. You are considering whether or not to allow a co-signer for a tenant. Should you?
Is the tenant a marginal tenant in terms of income, credit score or rental history? Or criminal record? Generally, a lower income person might want or need a co-signer to prove that they can pay. I understand the tenant needs help, but are you willing to take the risk? If the tenant is too high of a risk by themselves, can you mitigate the risk with a co-signer?
Here are a few of my thoughts on allowing a co-signer for a tenant.
Allow a Co-signer for Income?
People that are paying over 30% of their gross income on rent are high risk. Period. If they do not make enough money to afford the rental, you will forever have trouble collecting rent. the rent will be late, or non-existent. They will use the deposit to pay the last month’s rent. Then, they will not have any incentive to clean and leave you with a move-in ready apartment. Adding a co-signer into this mix means you now have two places to get rent, twice the trouble, except the second person was never planning ion paying for anything.
Allow a Co-signer for Credit Score?
If a person has a low credit score, they are a huge personal behavior risk. A co-signer does nothing to help with loud parties, feral children, or utility shut-offs. Insurance claims are higher with a low credit score tenant. If you have a kitchen fire, it is a strike against you. It is not an act of God; it is an act of negligence. Your insurance rates may be raised, or your insurance cancelled altogether.
A person without a credit score is also high risk. And if that same person without a credit score has collections and missed payments well in the past, they are double high risk.
People that do not have a credit score do for two reasons. The first is natural. They are young, or new to the country, and they just do not have a credit history.
The second reason is that they dropped off the credit radar. They use cash for most things, they do not have any banking accounts, and generally live “off the grid” in terms of credit. You cannot get a more risky tenant than that.
Allow a Co-signer for Rental History?
Some places want a co-signer for a tenant without any rental history. While that makes sense, you can look at credit score to determine of a person is true to their word. If they make all their other payments on time, they will make rent payments on time – if they have enough income to start with.
You can take a chance with a higher credit score, and no rental history, and skip the co-signer.
Allow a Co-signer for Criminal Record
Vouching for a tenant with a criminal record is interesting. What are they going to do, pay the tenant legal bills if the tenant gets arrested again? Complete the lease if the tenant goes to jail? Why are they hanging around someone with a bad criminal record? What is the co-signers record?
If the person thinks the tenant is so great, why do they not invite the tenant to live with them instead of your rental?
Get A Higher Deposit, not a Co-Signer!
If someone is willing to co-sign for a tenant, that means they are willing to cover missing rent, damages, and even late fees. They may have to cover the rent for several months if the tenant moves out before the lease ends. They are willing to have their wages garnished so that you can recoup your losses. If they are willing to do that, why not ask the co-signer to put up a larger deposit for the tenant.
If your deposit is $1,000, have the ‘co-signer’ put up an extra $1,000. It is similar to a temporary loan to the tenant, held by a third party (you). It is 100% refundable, to the tenant, and the tenant will give it back to the cop-signer when they move out. If the tenant is a good one, there is very little risk to the co-signer in this type of transaction.
If the co-signer will not put up an extra deposit for a tenant they know and trust, why do you want to do it for a tenant that you do not even know? When you rent to a tenant with high-risk characteristics, the landlord is indirectly putting up a larger deposit for them yourself.
Get an additional Lease Signer, not a Co-Signer!
A person that co-signs for a tenant may figure that it’s just a signature. They do not think about $5,000 in damages that need to be paid by someone, not them. Being an additional lease signer means a lot more. The co-signer will have a much more rigorous contract, your lease. The co-signer will get screened just like the tenant. They will have to disclose their income, their credit score and their criminal record. They are just like an additional tenant, and will have to be screened and approved by you. If they do not want all the privacy invasion, what would they do if they needed to write a check? Or show up in Court?
A co-signer needs to be screened just like the tenant anyway. Why would you allow a co-signer without verifiable income? Would you trust a co-signer with a lower credit score than the actual tenant to pay you back?
Does the Co-Signer Even Know the Tenant Well Enough?
Do not assume a co-signer even knows the tenant well enough to co-sign. They likely do not know the credit score, or even the income of the tenant. The co-signer might just be a work acquaintance. They might know the tenant is a ‘nice person’, and ‘seems great’, but you know that too, because of your initial meeting with them. Just as Ted Bundy’s victims knew he was a nice person.
A parent that will so-sign, but not allow the kid to live with them until their situation improves, is telling you something by their actions.
Would you ever allow a co-signer? If you have, have you ever had to collect from the co-signer, and did that ever work out? If you are a tenant, have you ever needed a co-signer, and why?