I am scaling my rental business and have previously not accepted any co-signers or guarantors simply because I didn't have enough units to fill and so I could afford to be more picky. However, as I have acquired more units and grown, I want to make sure I am not turning away too many people and leaving a unit vacant for too long because my rental standards are too strict.
I would like to see how many of you accept co-signers/guarantors and in what situations? I would not consider a co-signer/guarantor if the primary tenant's income was insufficient or if they had other unfavorable traits that I thought they would be a disaster tenant living in the unit (like a prior eviction, criminal record, etc.) -- co-signers cannot help those things. I currently have a potential tenant who makes good income and everything seems good about her, however her credit score is horrible (about 450) and many derogatory credit accounts. She explained the story of how it happened due to a divorce, etc. however you never know what to believe.
I am curious as to if you allow a co-signer/guarantor, or if you are more strict and simply have no exceptions. If you have 5 units or less, your opinion may not be as relevant to me because it is easy to be picky with few units. I guess I am interested to hear from people who either have experience managing or owning yourself more than 10 units and can understand my question from a scalability perspective. I am considering keeping my policy and not allowing co-signers/guarantors under any circumstances and just keep looking until I find a better tenant to meet my standards on their own. But I also don't want to walk away from potentially good tenants. At the same time, I have read many posts on BP regarding co-signers and there seems to be more bad than good.
Looking forward to hear your thoughts, thanks!
I allow co-signers in certain situations. An example may be someone who is almost meeting the criteria or someone who doesn't have a good credit history becasue he just started working a year ago. Obvisouly only you can decide what's right for your situation.
Hi @Soh Tanaka ,
Thanks for the reply. Based on my potential tenants information I described (450 credit score, many collections accounts, late payments, etc. within her credit report) is this someone that you would turn away or allow a co-signer? The hard thing for me is that she makes six figures and everything else about her seems good but credit history looks horrible.
If it's up to me, then no. Large income doesn't help, if she spends more than what she makes.
As Soh said, it sounds like she spends all or more than what she makes so I would definitely pass on that potential tenant. If she can't pay off her debts, why would she be able to pay rent on time and in full?
Best of luck!
It depends, in certain circumstances I have; but generally no. The two I have at the moment (not together btw) are working well. I advise meeting the cosigner and letting them know your expectation and the extent of their obligation. One of the tenants is disabled and the other is retired. Both leases are cosigned by family members. No problems.
We typically only accept co-signers if they are short on the income requirements. Think students, new graduates or people with limited income. They still need to have a good credit history.
Any evictions or money owed to previous landlords is an automatic "no" and I have yet to have an exception to that.
Thanks for the replies everyone. I agree with the comments made, such as “If she’s can’t pay her bills why would she pay her rent?” By looking at her credit report, it is clear to me she’d probably have issues paying her rent, but that’s where I didn’t know how much you all rely on a co-signer for. Do you only accept tenants if you “think” they can pay their bills and just as an extra safety precaution you get a co-signer? Or are there cases where you don’t think the tenant will be able to pay their bills (because their credit score/report is bad) so you allow a co-signer to fill that void? My thought is that if I don’t think a tenant can pay their bills all on their own, why would I want them living in my unit? However, I have not used co-signers before and was curious in what cases other experienced landlords would allow this.
So basically the question is: do you use a co-signer as a replacement for bad credit, or only as an extra safety net in cases where the credit is marginal and you aren’t 100% confident in the tenants ability to pay rent on their own but you “think” they “should” be able to?
Remember credit score is a number based on patterns and habits. Habits don't change over night. You must define what your minimum credit score is and stick with it. If she has lot debt outstanding and bad score then this is a no go! If bad score and no debt then maybe/yes but with a co-signer. I would say anything under 500 credit score is an absolute no go. This is assuming you are B/C rentals. If you accept her, make the lease month to month. I feel she will be headache for you.
@Jim Adrian , I totally agree with you on what a credit score is. My question was: Do you rely on a co-signer to relieve those concerns and essentially replace the tenants bad credit, or in what situations would you use/allow a co-signer? My questions here are not really around how to read a tenants ability to pay on their own, but more around what situations do you find a co-signer to be acceptable?
You provided a good example whereas you have a minimum score standard regardless (500) and then you also look at a combination of a low score vs. bad debt.
Are there any situations where you would allow a tenant with a lot of debt AND a low score? Or is that basically a knockout for you and you need limited debt to qualify?