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Should you allow co-signers for your rentals?

Allowing co-signers for your rental property

Should I allow co-signers on a lease for my tenant? This question gets asked a lot and there are a lot of mixed opinions on it. Some would say to never allow a co-signer and others would say, yeah, sure.

Our answer is yes, but with some strict limitations. The way we define a co-signer is a financially responsible person who will be liable for the financial obligations of the lease agreement.

One important tip here is they should be signers on the lease, same as the renter. So this could be a parent, relative or anyone for that matter.

Generally, a co-signer is requested by the tenant or required on your end if the tenant does not meet certain criteria, and here’s where a lot of people make mistakes. It’s important to make sure you understand the reason to allow co-signers is and that you have clear policies of what criteria you will or will not allow to be made up with.

Here are four guidelines we run our rentals by:

  1. A co-signer should never be used to make up for a lack of income. If the renter who will be living there does not meet the income requirement I never recommend allowing a co-signer to make up the difference. The one exception you could consider is a parent of say a college student or that type of situation.
  2. The co-signer should never be used to cover poor rental history, criminal history references, and those rather non-financial factors.
  3. Credit is typically the main reason a co-signer should be allowed at all; and not in all situations. Of course, you should really review this on a case by case situation or scenario and evaluate why the renter has a deficient credit situation
  4. Never allow a co-signer that lives out of state. This is something usually people don’t think about until they have made this critical error. In fact, in the early days, I did not understand the importance of this until I learned from the mistakes of some peers in our industry.

We never allow a co-signer who lives out of state. Why? Well, because if they decide one day, they don’t care about the lease, or their situation changes, or they declare bankruptcy or whatever. They simply don’t live up to their end. Good luck collecting from them, getting a judgment, serving them, whatever it is.

It’s really hard to file a judgment to serve. And all of those post-mortem action items with someone who doesn’t even live in the state or someone that’s not local, even if it’s the parent of a college student. There will be successful situations, but the one failure could haunt you for years, especially in this world of COVID eviction, moratoriums and all that. It’s just not worth the risk.

Effective tenant screening. 

Effective tenant screening really is the most important job of any landlord. 90% of your problems will come from poor tenant selection, which is why we have a team of about 20 people who do all of our tenants screening, full-time for our offices around the country. We are fanatical about it. We always make sure that all tenants meet our rental requirements.

When to allow co-signers? 

Allowing co-signers is a good idea depending on the situation, but you should only allow them if:

  • They aren’t meant to make up an income deficiency 
  • They aren’t used to make up non-financial factors; such as rental and criminal history references
  • They are used to bridge gaps in credit. 
  • They live in the same state.

We hope this is helpful for you. Also, if you’re looking for professional property management services, someone to replace you as the landlord, so you don’t have to do it anymore, reach out and we’ll be happy to chat with you about your situation. 

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