Should I Allow a Co-signer for a Tenant?

Co-signer for a TenantShould You Allow a Co-signer for a Tenant?

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?

20 Replies to “Should I Allow a Co-signer for a Tenant?”

  1. How about a college town rental? Seems to me having parents co-signing for kids on College rental properties makes a lot of sense. The parents typically would pay for rent and damage. Thoughts?

    1. Thank you for reading!

      A college rental is an interesting rental. Sometimes it is renting rooms, sometimes an entire home/apartment. Students are high-risk, by definition. They have a limited criminal look back period, limited rental history, limited credit length and limited income. All four of the tenant screening pillars are extremely weak.

      The students will generally have a credit score, if their parents are responsible and have initiated the process. I have had many 18-year-old rent from me, and all had 700+ credit scores. When you only have 2 accounts, for six months, it’s easy to have a great credit score. Life has not gotten in the way.

      If a student has a low credit score, avoid them like the plague. If they have any reckless charges, speeding, DUI, etc., avoid them too. You can only go back to when the kid was 18, so if in the past year or so they had a lot of ‘incidents’, you can assume it will only get worse.

      You do not want to be the one that finds out they are bad. Let the rookie landlords deal with that. There are plenty of great students out there to rent to.
      If the student does not have a credit score, you MUST still do a background check on the parents. You do not want to bank your rental profits on a deadbeat parent.

      Students come to college from many different backgrounds. You do not want to rent to the student that was raised by wolves.

    2. Parents as co-signers are the norm in many areas for leases and car loans to students.

      Anecdotal exceptions abound, but I would argue that a parent with a 700+ credit score has far more to lose than a student does, and that (all else equal) the student of a parent with a high credit score is likely to be much more responsible and better behaved than the student of a parent with a low credit score.

      Then again, landlords who deal in student housing often seem to specialize in it, and often seem to walk a fine line between keeping the housing livable but otherwise poorly maintained in order to maximize profits.

      1. Thank you for reading!

        I would agree, a parent would have more to lose. Just put the parent on the lease, and make sure you do the same background check. Far too many propel just take a signature, and assume all will be well.

      2. I do student rentals and if I have to bring the parent in then they become the leasee. Then they can pay me each month and take me out of the middle. However, I still credit check the actual renter as behavior is as important as rent payment and so need to ensure both are good.

        BTW, Grades are a great indicator of student tenant quality. I demand B average barring some extenuating cercumstances.

        Hope that this help.

        Eric, Loved the article. Summary, there are better ways than a co-signer to accomplish the same end goal.

        1. Thank you for reading!

          Grades are a great way of determining who is a lower risk. Having the parent sign is the best way, they take the student’s risk.

          Do you ever rent to a person that is not a student? Or can you keep non-students out, legally? I do not see an issue, but it is a question I would be interested in.

          1. My intent is to only rent to students. That said, I have one person that was a student and then quit school. He is great and so we keep him with us. As for descrimination, It is not flagged on any online sites such as Carigslist and such. Either way, as all landlords know, at the end of the day you can discriminate if you really want to. Most landlords only concern is to be paid, not cause trouble, don’t destroy the asset. Race, religion, etc… can come into it but are usually just a judgement from the landlords past experience with that group of renters. I have nad no students apply even though I specify it as a preference and I just look at them as a last resort. If they were that good i would rent to them anyway but usually a quiet study house is not what they really want so rejecting them is just avoiding future misery.

          2. One advantage to student rentals are that they are not typically sue the landlord/ I know my Rights ! Kind of people. I have found them to be very upright individuals with the exception that they can be a bit messy at times. We try and give them a great deal on the rent but screen to get the best of the crop to stay with us. They also tend to stay longer than would be expected as todays students are in school much longer. There primary debt issue is with their student loans but they do not impact them or us until after they graduate.

            One caveat is that the parents may be the Rights/sue people. In that case just avoid them. I look up the parents occupation on linkedin to give me clues on that side.

          3. One more. Every landlord should do a general internet search on their renters. Tenant reports are great but you can also learn a lot by looking at their online posts and pictures. They can be a great credit risk and also be very rebelious to authority which to me is a bad sign. I will tend to screen out controversial people as they cause issues among the other tenants and myself.

            I have excluded people based on Facebook posts and pictures, some from their prior living situations and complaints. No discrimination. A pain in the XXX is a pain in the XXX.

            Without some (Dictionary Defn) discrimination you will fail as a landlord ! That may be one thing at which you must excel.

  2. I like the idea of the higher deposit, but not sure it is legal everywhere. Some places have limits for how much you can charge as a security deposit, so you’ll have to make sure it is possible in your situation.

    1. Thank you for reading!

      You are correct. Some states do not allow a higher deposit. If that is the case, you need to make even more sure the tenant is qualified and low risk. You need to exclude even more applicants.

  3. Hey NNL,
    Hope all is well?
    Good post and some very clear conclusions to consider.
    We have had one tenant that needed his parents to co-sign. He was well educated and had a good job, but just missed the minimum income required for the unit. His parents were all too happy to co-sign. Although the tenant was perfect, he unfortunately already moved on to his own house. We would do it again in the future, considering similar circumstances. For most a higher deposit is not a bad idea, but I really like the co-signer on the lease, that is a very smart idea.
    Cheers!

    1. Thank you for reading!

      I would guess that that person’s credit score was very good, indicating he was a civilized person. With a high credit score, a person will give up eating to pay the rent. With a low score, rent is a last priority, they figure that they can always move somewhere else.

      1. Funny thing is, we don’t have credit scores in the Netherlands. But we do have a credit record system that only records if you have any outstanding credit (i.e. no debts = pretty record), he did come clean out of this one though. It’s a standard check that the property management firm checks. Plus they do a couple more checks obviously.

        Your point is well made on people with low credit score (or credit registration in our case), they will just move somewhere else and leave you with the bill/lost income.

  4. Great points. I never thought about adding them as a lessee instead of a cosigner. Need to be careful though, a lot of places regulate deposits. This is especially true in tenant-friendly states.

    I only accept cosigners if the cosigner lives in the same state. It’s very hard to pursue for damages when their live elsewhere. This is a really common scenario when kids move out of the house.

  5. Good advice and tips for renting to tenants. I have my first tenant in and she had 2 references, and a co-signer. SO far so good no issues and pays on time. Even just asking for the higher deposit will result in you getting an answer if the co-signer will have this person’s back if times get tough.

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