Have you heard?
The Toronto rental market is on fire!
It’s a funny thing, this rental market of ours. At times, it can be ice cold. Then at other times, the rental market can be so fierce it’s unfair.
Case in point: did you ever think we’d see the day where there’s an “offer date” for a property listed for lease?
I sure didn’t. And yet, that day arrived.
One of our TRG agents recently showed a unit, listed at $2,100 per month. This particular unit did not show exceptionally-well. There were dead cockroaches in the closet of the bedroom and the dishwasher was moldy and had all sorts of bugs inside. But guess what? There was an offer date for this condo! Yes, the very same offer dates we see with properties listed for lease, with the Brokerage Remarks reading, “Offers Reviewed On Tuesday, May 4th At 12:00pm.”
Cockroaches be damned, this property received ten offers and leased for $2,400/month.
I asked my colleague, “Was the property under-listed?”
Did somebody really take a $2,300 condo and list it for $2,100 to solicit multiple offers and drive the price up?
That is how hot the rental market can be, at times. And that was one of a few recent experiences we’ve had.
But here’s another one, and for the life of me, I can’t understand why agents out there are having trouble with the concept of a “guarantor” on a lease.
I recently had a listing – actually leased last night, thank God, where I continued to receive offers but for which the landlord did not want to accept “just anybody.”
And that’s the landlord’s right, okay? We’re not talking discrimination here, but we’re talking financial qualifications.
To reject a couple of young roommates who each make $35,000 per year, and are looking at a $3,400/month condo, is not to say, “I won’t rent to young people,” or “I won’t rent to a non-couple,” but rather, “I require a GDS ratio below 32%, and yours is 58.3%.”
Fair is fair.
I received several offers and applications on this condo for which the landlord said “no.”
Case in point: how about an offer with twelve month’s rent up front?”
Sounds great, right?
Except the tenant was a “celebrity German tattoo artist” who had no job in Canada, no income, no credit, and no supporting documents whatsoever other than a German passport.
Receiving $40,800 up front at the start of the lease would be great, but in this case, it wasn’t worth the trade-off of leasing to somebody who has no job and no income in this country.
One of the more interesting conversations I had, and the impetus for this blog, happened two weeks ago.
I received an offer from an agent who clearly knew that his clients – two young 20-somethings with entry-level salaries and poor credit, were not the best candidates, as he told me, “One of the girls’ fathers is going to be a guarantor, he’s solid as they come, business owner and all that.”
Let me explain what a guarantor is in a moment, as well as define “co-signer” as well. But for now, you can probably assume that a “guarantor” guarantees the rent. Right?
I said that, depending on the strength of the guarantor, this offer and application might be considered. Then I told the agent, “If you could get me the dad’s last two years’ T1’s and NOA’s, a credit score, and employment letter, I’ll present this asap.”
There was silence on the other end of the line.
Silence to the point where you actually check if the other person is still there.
“Hello?” I asked.
“I’m here,” he said. “I’m just processing.”
There was more silence, and then he said, “On what planet do you think it’s prudent to ask for personal information about the girls’ father?”
“Earth,” I responded. “Why, what were you thinking?”
Excuse my tone, but after his question, I had a feeling this wasn’t going to be a productive conversation.
“Why in the WORLD would you need personal information for my client’s dad? How is that necessary? How is that even fair? He’s acting as the guarantor. He’s not on title!”
Now, here’s where the word “guarantor” and “co-signer” get mixed up.
If you’re purchasing real property, then this distinction matters.
A guarantor does not go on title to a property when purchasing. It’s simply an attempt to strengthen the mortgage application, presumably on behalf of one’s children, or family member or business partner, etc. This way, there’s no capital gains implications for the guarantor upon the sale of the property. But as with a co-signer, the guarantor is providing a guarantee to the bank or lender that if the buyers on title default, then the lender can come after the guarantor for the debts owed.
A co-signer does go on title to a purchase, and this is the preferred method for lenders. The downside for a co-signer is that it will affect their credit, as any liabilities associated with the property for which he or she has co-signed must be disclosed in the event he or she is looking for additional credit elsewhere, ie. a mortgage, car loan, HELOC, etc.
In short: a co-signer goes on title and a guarantor does not.
But does this matter the same in the case of a lease?
Not at all, in my opinion.
The entire point of a co-signer or guarantor on a lease is that, if the tenant misses a rent payment, the landlord can go after the co-signer or guarantor.
“I need to know who your client’s dad is,” I explained to the other agent.
“I need to know his name, age, occupation, job title, salary and/or bonus, length of employment, credit score, credit history, debts and liabilities, and I need to see tax returns so I can ascertain that this information is factual.”
More silence on the other end of the line.
And then came this: “You know, I do a lot of leases, and you’re the ONLY person who has ever asked for this.”
“Thank you,” I replied.
“You shouldn’t be thanking me,” he said. “It wasn’t a compliment.”
He walked right into that, didn’t he? I said, “But it was a compliment. Because it tells me that despite the watering-down of our profession, the lack of experience and skill out there, and the utter laziness and indifference that exists in the leasing market, I’m still doing the best possible job for my client.”
Then, amazingly, he hung up on me.
Was I rude? Honestly, I’m asking. I know I was stern and direct, but I wasn’t wrong. And, I might add, he could have learned a thing or two.
A “guarantor” must be more than simply a name.
In this case, the guarantor was a scribbled signature on the Offer To Lease.
There wasn’t even a name beneath it. Just a mess of ink.
What good is that? What does that do for my client?
An agent in my position needs to look at the guarantor in the exact same way as the tenants themselves. I need to know who this person is. I need to know if this person would financially qualify to rent this condo on his own.
In this particular case, the agent said, “He’s a business owner.”
Great, good for him. But in that case, I can’t simply look at an employment letter, since he’d be writing that himself. I need his past two years’ tax returns. His personal tax returns. Who cares if he owns a business? That business could be in the toilet. What income does he personally generate from running this business?
I understand that somebody might be apprehensive about providing personal information like this. After all, when I buy something in a store, and they say, “Let’s start with your phone number,” I always tell them, “Let’s not. I’m simply here to buy this item.”
But if an individual wants to act as a guarantor for a tenant, whether that’s the individual’s daughter, son, or other, then that individual needs to be scrutinized on a financial basis.
You’ve heard me rant and rave about inexperienced, carefree, often part-time agents and the harm that they can cause. Well, here’s a case where I’m being chastised for doing the job the right way, rather than the way that others do it.
The funny thing is: this whole situation can boil down to a classic case of “much ado about nothing.”
Let me explain…
A few years ago in a very different rental market, I had just reduced the price of a 1-bed, 1-bath rental for the second time – now on our third price, we were approaching two months on the market, if you can believe it! This must have been the longest I’ve ever had a condo on the market for rent.
Eventually, we received an offer from a young woman who was very impressive: attending George Brown part-time, working full time, and hustling a waitressing gig on the side.
She was young. She had fair credit. Her income on paper was poor, but her income with undeclared tips from waitressing might have got her over the GDS ratio hump.
I looked at her Facebook profile and she seemed like a nice kid. Lots of photos of camping, drinks on the dock, nature, and her dog. She didn’t seem like a partier.
We would never have rented to her on her own, but, her mother offered to act as a guarantor. A co-signer, if you will. The young lady made an offer and her mother was listed on title as a “tenant,” with a clause in the Schedule A detailing, “So-and-so is a non-residing tenant.”
The final cherry was that her mother would provide a bank draft for first-and-last month’s rent.
After two months on the market, and two price reductions, my clients decided to accept the tenant.
With her income from two jobs, her mother acting as a guarantor, and her mother paying the deposit, it seemed like there was minimal risk.
Eight months into the lease, the tenant bounced a rent cheque.
The next month, already one month’s rent behind, the tenant bounced a second rent cheque.
But there’s no problem here, right? The mom acted as a guarantor. She co-signed!
I called the mother and explained the situation, and what do you think the mother said?
“I gave first-and-last month’s rent,” the mother replied. “That should be enough. That girl has to stand on her own two feet now.”
I explained to the mother that she was on title and that she was liable for any missed rent payments.
The mother said rather wryly, “Is that a fact? Well…………good luck with that.”
And indeed, that was that.
We had the same avenue open to us to litigate against the mother as we did with the tenant. They were both on title, both liable, but ultimately if neither paid, then what good was the guarantor in the end?
That’s rhetorical, of course.
A guarantor is only useful if, when called upon, they guarantee.
So while I’m not looking to scare any of you away from accepting a guarantor or co-signer with your next lease application, I am saying that cynicism is warranted here, since you merely have one more person to sue in court, which you’ll never do anyways.
Yeah, for real. And for those of you who aren’t aware: the Residential Tenancies Act doesn’t exactly favour the landlord.
The readers could all tell their own horror stories, I’m sure.
I’m not going to regale you with stories right now, but let’s just say that the board always looks to side with the tenants, and even in the most egregious cases, they will still look for a way to let the tenant catch up on rent and avoid approving an eviction.
So then, what good is a guarantor on your lease?
As I said: it gives you a second person to sue in court after you’ve failed to get the tenant out of your unit, via the LTB.
But would you take the tenant to small claims court? Would you take her mother?
Kudos to those of you that do, and congrats to anybody that has collected a penny as a result.
This is all the more reason to be exceptionally diligent and selective when agreeing to lease your property, be it primary residence or investment.
And when it comes to that guarantor or the co-signer that the other agent is touting as the fail-safe, if you find yourself asking aloud, “What good is this?” and you can’t find an answer, then know you’re on the right track…