So, you’ve found what seems to be the perfect tenant. Only, there’s a slight risk if you choose to go with them. Whether it be their income, credit score, or rental history, it’s always worth a second thought if you run into a marginal tenant.
That said, sometimes a less than stellar tenant can become a high-quality one with the help of a cosigner. Mitigating the risk a tenant brings to the table by allowing them to have a cosigner may be just what you need to fill a vacant rental property.
Before you jump into allowing a cosigner for your Phoenix rental property, find out exactly what a cosigner is and why your tenant might need one. From there, you’ll be able to decide whether having a cosigner for Phoenix rental homes is a good idea or not.
What Is a Cosigner for a Phoenix Rental Property?
A cosigner is someone that is designated to make rent payments to you if the tenant fails to pay. They sign the lease agreement and are held fully responsible for any payments your tenants miss. This ensures that you receive rent each month and that your tenant continues to occupy your property.
Here are some of the things a cosigner should agree to provide when acting on behalf of a tenant:
- Complete financial history
- Proof of income and employment
- A full credit check
- A rental application fee
It’s good to think about a cosigner for Phoenix rental properties as actual tenants. They have to be a good fit for your property just in case they have to take over as the provider of rent each month.
Cosigner Responsibilities
Cosigners for Phoenix rental homes are not just on hold for paying rent that your tenant fails to pay. In fact, a cosigner holds the following responsibilities:
- If your tenant has roommates, the cosigner agrees to be responsible for the entire lease, not just the portion of rent that is the tenant’s responsibility
- Any damages your tenant causes that are unpaid will become the responsibility of the cosigner
- If your tenant abandons your property before the end of their lease, the cosigner becomes responsible for any unpaid rent
In the end, despite the cosigner not living in your Phoenix rental property, they are just as responsible financially for the property as your tenants.
Why Some People Use a Cosigner
Just because someone wants to use a cosigner doesn’t mean they are going to be a terrible tenant.
Here are the most common reasons people use a cosigner:
1. Lack of Credit History
No credit means bad credit in the eyes of most landlords. After all, a solid credit history shows that your tenant can make payments on large purchases or rental agreements. If your tenant makes a lot of money, has great references, and is a good fit for your rental, but lacks good credit, you might consider allowing them to use a cosigner.
In addition, sometimes people don’t have a credit score because they are young and haven’t had a chance to build good credit. This doesn’t mean they can’t pay their rent; it just means they haven’t had a chance to prove it.
That said, those with low credit scores may be more trouble than you want to deal with. For example, someone that has poor credit has a history of not fulfilling their financial responsibilities. This is not something most landlords want to deal with, even if they have a cosigner.
2. No Rental History
Unless you’re lucky enough to be able to buy the first home you live in, you have to start somewhere when it comes to renting a home. The thing is, a lack of rental history doesn’t always sit well with property owners.
Never having rented a home before is not as bad as having poor credit. However, with no way to confirm your tenant’s ability to pay or behavior while leasing a property is a problem.
If your prospective tenant has a good income, a solid credit score, and great personal references, there is a solution – allow a cosigner. With a cosigner, the problem of having no rental history becomes moot. If there is ever a problem, the cosigner will take on the responsibility.
3. Criminal Background
Although it might not be recommended, you might consider allowing a cosigner for someone with a criminal record. The term “criminal record” is a vague one. It really boils down to what your potential tenant was in trouble for in the past.
At the end of the day, however, a tenant with a criminal background using a cosigner might not be the best choice for you. After all, a cosigner can only do so much to protect you and your investment.
4. Not Enough Income
One of the biggest pieces of advice all landlords hear is that the tenants placed in properties should make enough money to cover the rent, plus a whole lot more. That means you or your property management company’s tenant screening process must include employment and income verification.
Of course, there are times when a tenant is perfect, aside from the fact they don’t quite make enough money. Rather than skip on a tenant that has the potential to be great, it’s a good idea to consider allowing a cosigner. This way, should your tenant run into money problems, you know you’re covered.
How to Vet Cosigners for Phoenix Rental Homes
If you’ve decided that you’d be open to allowing a cosigner for your Phoenix rental property, it’s good to know how to protect yourself from the start.
1. Screen Cosigners Like Tenants
As we mentioned above, you should treat a cosigner like a tenant when it comes to the screening process. This means you should check a cosigner’s income, employment, criminal background, credit scores, and references. You need to make sure the person you allow to vouch for your tenant will be able to step in and handle problems should they arise.
2. Require an Application Fee
Anyone that agrees to be a cosigner for a tenant must meet your qualifications. In addition, since they are agreeing to cover your tenant’s financial responsibilities if need be, there should be no issue with paying an application fee. You have to qualify more people when allowing a cosigner. This means you incur more fees during the screening process. Your tenant’s cosigner should be okay with covering this added cost.
3. Verify Cosigner Contact Information
The last thing you want to have to deal with if your tenant fails to pay rent is hunting down the cosigner you agreed to allow. Having a cosigner in place is a great failsafe if your tenant comes up short in rent. However, a cosigner does you no good if you can’t get in touch with them. Many cosigners bail, just like bad tenants. Do your best to avoid this by verifying contact information as best you can.
4. Explain the Responsibilities to the Cosigner
Just like you explain the lease agreement in full to your tenants, you or your property manager need to explain to the cosigner their responsibilities in full from the start. Remember, cosigners are not there just to cover missed rent payments. Damage to your investment property is also their responsibility.
Make sure you have the cosigner sign a Cosigner Agreement as well. This ensures they have agreed to the terms of being a cosigner. It also guarantees your position should you ever land in court in a landlord-tenant dispute.
5. Require a Performance Fee
Some landlords will require a performance fee of a cosigner. This upfront fee is in addition to the first and last month’s rent and the security deposit. The performance fee serves as collateral for being a cosigner. After all, a cosigner has nothing to do with you as a landlord unless the tenant misses a rent payment.
Requiring cosigners to invest a little bit of their own money – to be returned at the end of the tenancy – is a great way to make sure they’re serious about their commitment.
Interested in having us manage an income property for you? Contact us today and see how we can help you find stellar tenants and manage cosigners if need be.
At Stratton Vantage we want to make sure you never worry about whether rent is going to be paid or not. With a solid tenant screening process in place, expertise in placing high-quality tenants, and the commitment to providing superior customer service, we know you’ll generate positive cash flow from the start. And, if there’s ever an instance where a cosigner is an option, our reliable property managers are willing to work with you to make the best out of any situation so your property doesn’t sit vacant.
