Philadelphia
let’s talk: COSIGNERS – A LANDLORD’S PERSPECTIVE
| Good Morning! This week we are focusing on COSIGNERS. The need for a cosigner can pop up from time to time when working in real estate or the lending industry. I recently was put in a situation where I needed to decide how I was going to handle them as a landlord so I want to talk it out with you guys. So, as we do, let’s talk Real Estate, let’s talk COSIGNERS- A LANDLORD’S PERSPECTIVE… QUICK REFRESH, WHAT IS A COSIGNER? “A joint signer of a promissory note” – Merriam Webster “An additional guarantee for a promise of payment, outside of the primary renter/borrower.” – Erin Kelly WHERE DO WE SEE THEM? Rental Units When a prospective tenant is looking to rent out an apartment, they may require a cosigner in the event they do not meet the landlord’s underwriting requirements. In this instance, they can bring in a cosigner who does meet those underwriting requirements and can guarantee the lease with them. Personal story- when I first moved to CT, my roommate there was being relocated for worK just 8 months into our 12 month lease. She wanted to be removed from the lease before she left for the other side of the country. I however did not want to move until my lease was up, and although I was able to “afford” this unit through work, I did not meet the technical underwriting requirements set out by the building. So my Dad cosigned the lease for those remaining 4 months. It was a HUGE thing in our household, because the responsibility of a cosigner is A LOT, but it all worked out for the best – THANKS DAD. Loans Mortgages, car loans, personal loans, etc. WHAT ARE THE RESPONSIBILITIES OF A COSIGNER? I am going to focus on leases here because this is a real estate group after all, right? Basically the role of a cosigner is to assume all financial responsibility, in the event the tenant does not pay their rent or any fees associated with said unit. As a cosigner of a lease, the cosigner must be prepared to assume 100% financial responsibility for that apartment. That includes all rental payments, monthly fees associated with living in the unit, as well as any fees incurred due to damage to the unit. IT IS A HUGE RISK TO TAKE ON. If the renter that one is cosigning for does not pay the rent, or skips out on any of these fees, THE COSIGNER IS RESPONSIBLE FOR PAYING THEM. Late or absence of payments can result in a negative affect on both parties credit score. ARE LANDLORDS REQUIRED TO ALLOW COSIGNERS? As far as I can tell, the answer is no. It is totally up to the landlord and management company to determine their own company policy on the matter. THE UPSIDE OF ALLOWING COSIGNERS [FROM A LANDLORD’S PERSPECTIVE] #1 The presence of a cosigner allows you to further protect your rental income by holding more than one party accountable for the payment. #2 If you, as a landlord, allow a consigner, you can be more flexible on your tenant requirements which in turn may help fill unit vacancies quicker. #3 If things go wrong, the landlord now has more parties they can seek to remediate issues with. THE RISKS OF ALLOWING COSIGNERS [FROM A LANDLORDS PERSPECTIVE] #1 Negative connotation. A landlord MAY view that tenant as a “higher risk” tenant because they do not have the financial or credit capabilities of getting the unit on their own… I will be super open and honest with my opinion on this – I do NOT feel that way at all. A person might need a cosigner when they are a student, or starting a new job, or moving to a big city where rental rates are honestly just astronomical. While I do check credit scores, I believe these should also not be used as a concrete deciding factor for a landlord. There are SO MANY things that are not actually “risky” but can negatively impact someone’s credit score – student loans, little credit history, a medical situation, etc. #2 It can be tricky to seek rent remediation from cosigners…especially if out of state. I remember seeing this in NYC a lot. It was not always easy to find a unit for clients when they required an out of state cosigner. But is doable! Heck,I even did a deal with a cosigner who was not just out of state, but on the other side of the world! Remember, everything in real estate is negotiable. Personally, I am on board with allowing COSIGNERS and do / would allow them for my rental properties. However, I do require that any cosigner meet the income requirements on a standalone basis, and I also run a full background and credit check on both the cosigner and tenant. SO, now that I have shared my current personal opinion, I want to hear yours! Do you / would you allow cosigners for your rental properties?! If so, are the requirements more strict for that cosigner? How do you go about “vetting” the cosigners? Please share your best practices! |
| Happy Wednesday! Erin p.s. CHECK US OUT ON SOCIAL MEDIA Blog: www.lets-talk-re.com Instagram: @erinhomeandrealestate FB Page: https://www.facebook.com/ErinHomeandRE Twitter: @ErinKellyHomes LinkedIn: https://www.linkedin.com/in/erinlindseykelly/ Pinterest: https://www.pinterest.com/erinhomeandrealestate/ LinkTree:https://linktr.ee/erin.home.and.realestate p.p.s. if you are looking for an online class to help boost your social media presence – check out http://www.gogosbootcamp.com I have personally done this class and found it super helpful!Happy Wednesday! Erin p.s. CHECK US OUT ON SOCIAL MEDIA Blog: www.lets-talk-re.com Instagram: @erinhomeandrealestate FB Page: https://www.facebook.com/ErinHomeandRE Twitter: @ErinKellyHomes LinkedIn: https://www.linkedin.com/in/erinlindseykelly/ Pinterest: https://www.pinterest.com/erinhomeandrealestate/ LinkTree:https://linktr.ee/erin.home.and.realestate p.p.s. if you are looking for an online class to help boost your social media presence – check out http://www.gogosbootcamp.com I have personally done this class and found it super helpful!NEW TO OUR EMAILS?! SUBSCRIBE HERE Data Sources for Today’s Content: Me – this is based on my own personal experience! https://www.rentometer.com/articles/pro-s-and-con-s-of-using-cosigners-on-a-lease https://www.brickunderground.com/rent/landlord-wont-accept-co-signer |
Erin Kelly
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