Today’s renter is less likely than ever to have a traditional income stream, which creates challenges on both sides of a rental agreement.
Whether potential renters have credit challenges, earn a living through self-employment or freelancing, or rely on non-W2 income that doesn’t fit nicely into biweekly paychecks, many find it harder to get approved for a place they can easily afford. Meanwhile, landlords have to balance guaranteeing consistent rental income with filling units. Though multifamily owner-operators have traditionally used personal guarantors as a risk-mitigation tool, the result often includes inefficiencies and costs that operators aren’t calculating.
The Real Deal sat down with Jesse Schmidt, EVP of Sales, Northeast & Emerging Solutions and Mitch Towbin, Senior Vice President, Growth & Strategic Partnerships at TheGuarantors, to talk about the limitations of personal guarantors and how institutional guarantors are filling the gap.
The risks of relying on personal guarantors
Personal guarantors are a relic of the past, especially in young urban markets like New York.
“One of the things that makes New York City so special is that people come here to create independent lives and careers,” says Towbin. “For many young professionals and students, securing an apartment is one of the first major milestones in that journey. The leasing process should reflect today’s workforce, not force qualified renters to depend on parents or wealthy relatives to access housing.”
Even if an applicant can provide one, a personal guarantor that makes a renter look less risky doesn’t necessarily provide financial security.
“The biggest misconception about personal guarantors is that it automatically equals protection, and that you’ll collect the full amount that’s owed, no questions asked,” explains Schmidt. “In reality, there’s a major difference between a signature from a guarantor and actually recovering losses efficiently.”
Personal guarantors are expected to meet extremely high thresholds, especially in cities like New York, such as an income of 80x the rent or credit score of 750+.
“While some guarantors are highly qualified,” notes Schmidt, “others may appear qualified only on paper, and are very difficult to collect from in reality.”
The realities of recovering lost rental income using personal guarantors
Through conversations with TheGuarantors’ owner-operator partners, Schmidt has learned that recovery rates on personal-guarantor-backed leases are often much lower, and slower, than people assume.
“Among our partners, we’ve found that, on average, 40% to 60% of balances are ultimately recovered on personal-guarantor-backed leases,” he says, “meaning roughly half of the amount was still lost, despite having a guarantor on the lease.”
One partner shared that, when a renter on a personal-guarantor-backed lease defaulted, it took more than three months before any payment was received. Many cases dragged on for a year or more, requiring collection proceedings, attorney fees and significant staff time.
“Owners don’t just care about whether the money is actually recovered,” says Schmidt. “They care about predictability and the speed at which they get the money, because it directly affects whether or not they can pay their bills. They need to make sure that they have that cash flow coming in.”
How institutional guarantors offer stronger, more predictable protection
Owner-operators can avoid the time-consuming, unpredictable outcomes associated with personal guarantors by having applicants use an institutional guarantor instead.
Brett Solomon, Senior Vice President, Leasing and Marketing, Stonehenge NYC, has seen the benefits firsthand.
“TheGuarantors has improved our efficiency with the approval process,” he says. “More importantly, they have improved the applicant experience, offering our renters more options and flexibility while securing an apartment in NYC.”
Towbin sees the shift as a way to better serve both renters and owners.
“Modern risk solutions can support renter independence while providing owners with stronger, more predictable protection and a streamlined recovery process,” he says.
If a renter defaults, working with an institutional guarantor can significantly improve the recovery process, reducing owners’ legal costs and operational burden.
“With personal guarantors, owners are relying on the individual’s willingness and ability to pay at some uncertain point in the future, and that often involves a lengthy legal process,” explains Schmidt. “An institutional solution like TheGuarantors is a much more structured financial product, designed for lease risk mitigation.”
In many cases, it can take more than 8 months for owner-operators to recover less than half of what’s owed from a personal guarantor. TheGuarantors’ partners, by comparison, typically recover 97% of losses in just about 3 weeks.
Simplifying the rental process, nationwide
Today’s renters typically have more diverse income streams and less linear career paths than in the past, and the traditional leasing model hasn’t evolved.
“The qualification process remains heavily dependent on rigid income multiples and personal guarantors,” says Schmidt. “At the same time, our partners tell us that using personal guarantors created friction without delivering the level of protection that they expected.”
TheGuarantors’ Lease Guarantee solution expands access for qualified renters, while enhancing predictability and protection for owners. Today, the company protects over $7 billion in lease value and is accepted in over 4 million rental units nationally.
“In New York City specifically, we work with over 95% of the larger owners,” notes Schmidt.
An institutional guarantor provides these owner-operators with a high level of standardization, predictability and transfer of risk, while potential renters appreciate the expedited process and opportunity to qualify on their own.
While it may take up to a week for a landlord to qualify a personal guarantor, TheGuarantors takes 9.6 seconds on average to determine if it will approve a renter. The company considers millions of data points in addition to credit and income, pricing each individual renter applicant’s risk. Once a renter applicant is approved by the company and pays for a Lease Guarantee policy, lease signing with the property can proceed.
“Our AI-powered renter underwriting evaluates much broader indicators of financial responsibility, including credit behavior, debt obligations, and payment trends. We screen for fraud and go as far as analyzing cash flow,” says Schmidt. “The process gives more quality renters a chance, and the goal is to sustainably modernize leasing in a way that supports renter independence without increasing owner risk.”
Learn more about TheGuarantors here.