Should You Allow a Cosigner For Your Tenant?

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It’s tough enough to draft a legally compliant lease agreement for your Philadelphia tenant, but adding a cosigner policy takes things to another level of complexity.  Along with that comes the question of why your tenant needs a cosigner in the first place.

But is it really a big deal to allow your tenant to have a cosigner?

After all, so long as the agreed upon rent gets paid, that should be all that matters, right?

Possibly.

Sometimes, it’s hard to find an outstanding tenant for your rental property.  And if you happen to find a promising tenant that simply needs a cosigner due to a lack of credit history, you many not hesitate in agreeing to the cosigner and leasing to them your investment property.

Today, we are going to explore what exactly a cosigner is, why your prospective tenant may need a cosigner, and whether you should risk allowing your Philadelphia tenant to have one.

 

What Does It Mean To Have a Cosigner For Your Rental Property?

A cosigner on a lease is much like a cosigner on a car loan.  If the tenant leasing your property is unable to fulfill the financial rent obligation for whatever reason, the cosigner then takes on all responsibility of making the payment in full.

This ensures that you get your entire rent amount, and the tenant continues to reside at your property.

Easy enough, right?

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There are several things you can request of a cosigner who is willing to share the financial responsibility of a lease agreement with your tenant:

  • A rental application complete with application fee
  • A full credit check complete with credit check fee
  • Proof of employment
  • Complete financial history

The key here is to screen the cosigner just as you would an actual tenant to ensure they are a good fit and can be relied upon to pay rent if the tenant doesn’t.

Responsibilities of the Cosigner on a Lease Agreement

If you choose to allow a cosigner for your tenant, it is crucial they understand the following responsibilities:

  • If the tenant leaves the property before the end of the lease term, the cosigner can be sought out for unpaid rent
  • Any damages incurred by the tenant that go unpaid become the responsibility of the cosigner
  • If the tenant has roommates, the cosigner signs for the entire lease and the rent that is due in full, not just one roommate’s portion.

The concept is quite simple: A cosigner is a person not living in the rental property but that has agreed to take on the full financial obligations of said lease agreement, regardless of who is at fault for non-payment (the tenant or possible roommates).

 

Why Your Philadelphia Tenant May Require a Cosigner

There are plenty of reasons why a prospective tenant looking to lease your Philadelphia rental property may need a cosigner to seal the deal.

Let’s look at some of the most common reasons for needing a cosigner and whether they are good enough reasons for you.

Not Enough Income

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It is widely accepted that those spending over 30% of their gross monthly income on rent are going to have problems paying on time and in full at one point or another.  This is why tenant screening, income verification, and credit worthiness checks are such an important piece of being a property owner.

If you want your rent money, you must place tenants in your property that have enough money in the bank each month.

However, for those looking to live on their own for the first time, meeting this requirement can be tough.  Thus, placing a high quality tenant that might not meet your exact income requirements in your rental with the guarantee of a cosigner is a nice option.

That said, make sure that not only the potential tenant you are placing in your property is a perfect match in all other areas, but also that their cosigner is reliable.  The last thing you want to do is have twice the trouble collecting rent when your tenant and their cosigner are unwilling, or unable, to pay.

Spotty Credit Score

One great way to gauge a tenant’s ability to pay rent on time is to perform a thorough credit check, complete with credit score and past payment history.

If you have a tenant that has plenty of income, a solid set of references, and seems like a great match for your rental property, yet has a low credit score, consider having them enlist the help of a cosigner.

The truth is that credit scores give property owners a preview of past behavior.  A low credit score, or even worse no credit score, can mean that payments have been missed, too much credit has been taken out, and the responsibility to handle a tenancy is simply nonexistent.

It is important to assess each low credit score rating on a case-by-case basis.

A young person that hasn’t had time to build a good credit score is one thing.  A tenant that cannot handle the responsibility of making rent payments (or any payments for that matter) on time and thus has a low credit score is an entirely different thing.

Even with a cosigner in place to help alleviate these problems, you may decide it is not worth the risk.

No Previous Rental History

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It is important during the tenant screening process to reach out to your prospective tenant’s previous landlords.

But what if your tenant has never leased before?

While this may seem like a risky situation, it is not as bad as having a poor credit score.

And, while a cosigner may be able to buffer the possibilities of your tenant not paying their rent in full (because there is no way to confirm otherwise), it may not be necessary to have a cosigner in this situation.

Other factors, such as credit worthiness, personal references, and income verification, will give you a good idea whether your tenant will pay.

However, in the case you are still nervous, either require a cosigner or find a better tenant with strong leasing history.

 

Things to Think About Before Leasing to a Tenant That Needs a Cosigner

As a property owner in the rental property business, it is vital you approach your business in an objective way.  In fact, this is best done with the help of an experienced property management company, such as Bay Management Group.

You may want to help the young tenant that has no credit score because you remember what it was like to be that age and how hard it was to get into your first high quality rental.  However, your money and reputation are on the line and letting emotions get in the way can cause a lot of harm to your business.

Being proactive and requiring a cosigner can help with these kinds of scenarios.

Here are two essential things to consider before allowing a tenant into your Philadelphia rental property with a cosigner:

  • Make sure the cosigner can pay. It is unwise to implement a cosigner policy into your tenant’s lease agreement if the cosigner vouching for them cannot pay either.  Be strict with the income verification process and credit worthiness of any cosigner you allow into the lease agreement.
  • Verify cosigner contact information. Sure, having a cosigner back your tenant is a great strategy for avoiding non-payment of rent.  However, if you cannot get in contact with the cosigner when a problem comes up, there is very little you can do to recoup your losses besides take the issue to court.  This, of course, does not guarantee payment, (because many cosigners skip out just like bad tenants) and leaves you stuck in the red.

 

In the end, leasing a valuable Philadelphia rental property can be difficult when it comes to collecting full rent every month.  Yet, by employing a property management company with thorough tenant screening procedures, strict rent collection policies, the ability to back you in court in the case of non-payment, and the willingness to manage all other things property related, leasing a rental property is not nearly as tough.

And, if you do decide you want to allow cosigners to vouch for tenants you place in your property, a Philadelphia management company, like Bay Management Group, can help you draft an airtight lease agreement outlining the responsibilities of everyone involved.

So contact Bay Management Group today and see how we can help you place a high quality tenant in your rental property, with or without a cosigner.


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