Reliable Rent Guarantors - When Is It Appropriate to Request One in 2023?
It's critical to find a trustworthy tenant if you are planning to rent out a residential property. The unsuitable tenant might cause property damage, generate annoyances for other occupants, leave the property in an unappealing state, and even fail to pay rent.
Landlords investigate potential tenants' credit scores, job records, criminal histories, and rental histories through a series of background checks. The more thorough your background investigation, the more likely you will find a qualified and trustworthy tenant.
It would help establish whether your prospective tenant will be an excellent long-term resident based on the information acquired during the application process. Past evictions, problematic credit histories, numerous employment changes, or a lengthy criminal record are major red flags.
You will come upon an oddity every now and again. Some potential tenants show promise, but they lack the background information needed to make a firm choice one way or the other. For example, you may be working with an applicant with a good credit score and no criminal background but has a low income or no documented rental history.
You don't have to deny or approve someone explicitly in these situations. Instead, request that they give you a guarantor. A rent guarantor is a third party who will not live at the property but will take legal and financial responsibility for any unpaid rent or damage caused by the tenants while they are there. It is a defence mechanism against the unknown.
As well, did you know that asking for a rent guarantor can help protect you and your mortgage, to learn more about how this service can help you secure your investments, click the link below to book a free strategy call today.
Responsibilities of the rent guarantor
Guarantors are usually the applicants' parents or close relatives. Because young individuals and students often have short rental, work, or credit histories, obtaining a rent guarantor can allow you to give them a chance at your investment property while still protecting your interests.
Renters are more likely to be on their best behaviour since they have a close, familial relationship with their guarantors. Nobody wants to get into trouble with their parents, right? Including a third party in the lease agreement can aid in tenant accountability and property respect.
Rent guarantors take legal responsibility for late rental payments and levies, as well as any damage caused by the applicant during the tenancy. When committing to act as a guarantor, the guarantor accepts a significant level of risk. It's a bad indicator if your tenant can't come up with a guarantor.
In some ways, requiring a guarantor is a form of screening, not just of the guarantor but also of the degree to which the prospective renters' closest friends and family believe in their capacity to pay rent and not cause damage to the property.
When should you get a rent guarantor?
It might be challenging to understand when to reject an application outright and when to request a guarantor. When determining whether to deny or approve an application or whether to ask for a guarantor, keep the following in mind:
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Low income
Rent should never account for more than 30% of a renter's income. If your unit's rent is more than one-third of your prospective renter's salary, you will have a difficult decision to make. When making this option, consider the degree of wealth imbalance.
No prior rental history
This is particularly true for young people and other first-time renters. A potential tenant who is fresh out of college or currently a tenant is unlikely to have a long renting history. This means you can't predict how they will act once they have moved into your rental unit. A guarantor can assist you in safeguarding your interests.
Bad credit
There is a distinction to be made between having little credit and having bad credit. If a potential tenant has limited credit, it is most likely because they have not had the time to establish one. They may have bad credit if they are unable to keep up with their payments and costs. Bankruptcies and debt defaults are huge red flags.
What should you seek in a rent guarantor?
It would help if you searched for the same qualities in a guarantor that you would in a good renter.
You want to be able to count on them to bring in enough money to cover the rent and costs associated with the lease, as well as any damages the tenant may cause. Check to see whether they have a good credit history and if they have any outstanding criminal convictions. A suitable guarantor should have the following characteristics:
Good credit
A guarantor's credit is even more critical than a tenant's. Guarantors must be able to cover their expenses and perhaps cover the tenants, which may necessitate the use of loans or other forms of credit. Make that their credit report is clear of errors and red flags.
High income
Guarantors will need a high salary and access to funds because they are accountable for their living expenditures and renters. Before allowing the guarantee to sign the lease, inquire about the guarantor's outstanding bills and debts. While the one-third rule does not apply to guarantors, make sure they can cover 50-75 percent of the rent in any given month if your tenant is unable to pay.
Stable employment
Your guarantor's account should have a stable stream of income from a long-term employer. If they appear to be changing employment frequently, they may be unable to cover the price of maintaining the tenant's unit. If the guarantor has begun a new, higher-paying job, this is the only true exception.
Rent guarantor services are governed differently in different provinces and municipalities. Check to see if your lease and guarantor agreement comply with local regulations.
It is essential to enlist the help of a reputable real estate attorney when drafting your lease agreement and guarantor clauses. There is a good chance you will end up in court if you have trouble collecting fees from the guarantor. Let us hope it does not come to that!
Did you know that asking for a rent guarantor can help protect you and your mortgage, to learn more about how this service can help you secure your investments, click the link below to book a free strategy call today.