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.

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Screening Tenants For a Rental Property From a Landlord

interviewWhen you are a landlord, you need to rent to good people.  Screening tenants for your rental property will be the key to your success.  The tenant can be of any race, religion, nation origin, etc. Screening tenants will determine the experience that you will have and how much money you have the potential to make regardless of any protected class.  After all, making money is the goal of a landlord.  Providing housing, is secondary.

I would say that almost all people with a credit score of 625+, and a household income of $45K a year with a rent of ~$1,125, with a minimal criminal background and a clean rental history will make for a decent tenant.  Of course, a decent deposit will also be necessary.

Here are a few instances I recently came across with screening tenants, that shows what a landlord is up against in regards to tenant screening.

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How to Avoid Bad Tenants

Avoid Bad TenantsWhen you have places for rent, inevitably you will find tenants to avoid.  You need to understand how to avoid bad tenants.  As a matter of fact, if you screen tenants with any sort of consistent basis at all, about 95% of the inquiries will be from poor quality tenants.  There is even a scientific basis to these numbers.

With about 30% of tenants being ones to avoid, it is better to exclude a few good ones, rather than take a chance.  One bad tenant can kill years of rental profits.  Here is a case of a tenant I recently avoided.

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Tenant Damage vs. Wear and Tear => Case Study

Broken WindowTenant Damage vs. Wear and Tear or “The case of the Broken Window”

I just had an incident where one of my renters caused damage to another building I own.  I own 20 condominiums in a complex, it is high density housing.  Formerly a Class D neighborhood, which I was able to turn around.

Now that the neighborhood is safe to be outside in, the parents want to keep it that way.  They can bring their small children to the park, and not have to worry about fights or drug deals going on.  It is not to say that kids always behave, but if you keep on top of things, they do not get out of hand.

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Tenant Deposits, How to Reduce Risk

hand-holding-a-grenade-1411373825Xtf-PDTenant deposits are one of your keys to risk mitigation.

If you are like most landlords, you think that the largest risk to being a landlord is getting your rent.  You know that deposits will protect you, and if you are calculating your numbers correctly, you will make a big profit.

Make no mistake, if you think all you need is a deposit to protect you, you will be headed for disaster.

The number one way to protect your income stream from tenant defaults is to get great tenants to begin with. Good tenants will bring in a solid income of at least 3.5x the rent in income. Preferably much more. With the average family income over $50K annually, just getting an average income will probably be well over 3.5x the rent in income.

Income will tell you the tenant’s ability to pay rent.

The second piece of the puzzle is credit score. With a C-grade credit score north of 620, and the average tenant’s credit score being north of 650, it is easy to weed out lower scoring tenants to reduce risk.

Why take the bottom of the barrel tenants in terms of credit score, and increase your risk? These people may be great people, and some will definitely pay rent, but it is a higher risk potential. Mitigate your risk by selecting a tenant who has proven their ability to stand behind their financial commitments.

Read more here

Do you have any interesting tenant deposit stories? What is your policy on deposits, or what have you experienced as a tenant?

Declining Tenants that Are Persistent

Decline tenantDeclining tenants is a necessary part of being a landlord.

A tenant recently inquired for one of my rentals.  I always do on-line advertising so most of the inquiries are via email.  If they call directly, I get their email address texted to me, so I can email them my standard response.  As I have posted before, I typically send out a canned response so that prospects can understand what I am looking for in a tenant, and they can also get a better understanding of the layout of the apartment(s).

A link to a video tour is also included, which I have received a lot of unsolicited compliments on.  I just walk around the apartment narrating the video.  Nothing fancy, no high tech camera.  But it works.

Here is how one applicant inquiry went, from a tenant I declined.

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Warning Signs for Incoming Tenants

red flagHere are some warning signs for incoming tenants offered as a guest post in regards to some tenant quirks that may make for a bad tenant.  It is a great list, most of which I agree with, although some are not as much of a red flag.  Some are a bit non-conventional, and others are spot on.  (I might fail a few myself, especially the ones about how the tenant  is dressed…)

Warning Signs

Not all tenants that exhibit these behaviors are going to be terrible, high-risk tenants.  Each one, in and of itself, is not necessarily bad.  If you have a list, and start checking each item as you interview the tenant, the more red check marks you have the worst the tenant is likely to be.

Of course, income and credit score are the best indicators.  This is also a great list for tenants to read.  It might help you appear more ‘normal’ to a landlord (whatever normal is…).  Things like intimidating the landlord, cursing excessively, and objecting to a background check are a pretty bad indicator.

It is a great read, and you can see how many you might fail yourself.

1.They try and get you to lower the rent before they even see the apartment.

This is a sure sign that this tenant can’t really afford the property. Asking before the showing means that the value of the property means little to them, they only care about the cost.

 Read More Here

What do you think of the ideas?  Do you have other things that people do that would make you hesitate to rent to?  

Do you have a list of landlord red flags?  If so, I could post that too!

Apartment Turnover and Other Maintenance

Apartment TurnMy final apartment turnover for March is complete.  I am all set until the end of April now.  I had the new tenant sign a lease and pay the rent for the remaining March rent, and all of April, on 3/24.  I prorated the rent for March, and she also paid all of April.

These tenants have a solid credit score, and solid income, so they should be a great tenants.  It is only one person for now, and another that moves in in August.  Both have been screened and accepted.

That is the way to do it, declare and screen everyone who will be moving into the apartment right up front.  No one wants to be told their significant other can’t move in a month down the road.

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The Tale of a Problem Tenant?

criminal-portrait-PDNo matter how good of a landlord you are, or how great your system is, you will sometimes have issues with a problem tenant.  It is up to you to mitigate the issues and make for the best.  You must have the ability to recognize the problem, have a solid way to handle it, and have a back up plan it that first plan fails.  And you have to be ready, able and willing to execute the plan.

I came across a potential problem on my recent tenant.  Here is the scenario.

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The True Cost of a Bad Tenant: Why You CAN’T Afford Not to Screen

Bad tenantAre you capitalized enough to be a landlord? Can you really afford the true cost of a bad tenant?

Far too many ‘investors’ neglect one of the main things that will put them out of business.  Their customers.  Like it or not, no matter how genuine a tenant sounds in the showing, when they are behind on their rent, they can be as mean as a snake.

I see it all the time: A prospective landlord looks at the numbers and says, “Rent will be $1,000 a month. My payments will only be $800; I can pocket the rest.”

If you are any type of investor, at least one who reads here, you know that this is a losing proposition. There is $200 worth of cash flow — before expenses. After expenses of 50%, there is a negative cash flow of $300.  And they are even managing the property for free.

bad tenant 2But to the naïve investor, on the surface it looks OK: $200 a month in your pocket. And that is if you get a renter, if you get a renter who pays, if you get a renter who doesn’t damage the place, and if you do not have any vacancy.

The Start of Trouble and The Cost of a Bad Tenant

Read More Here