19 Aug Security Deposit Alternatives
Security deposits are generally regarded as essential for landlords in the event of damage to the property. All the fees and bills like first month’s rent, pet fees, deposits, and the cost of moving can make the security deposit hard to pay for tenants.
Security deposit alternatives can be cost-friendly options for tenants and landlords. Some states now require landlords to accept these new options.
The value of a security deposit is clear to see. It can be used to make repairs, replace appliances, or pay rent to help with expenses incurred by the tenants. They encourage tenants to take care of your property.
A study showing that most Americans live paycheck to paycheck, even before the pandemic, means many people cannot put aside savings. Because of this, even responsible tenants may find it hard to come up with the money for a traditional security deposit.
For renters, this can make it extremely difficult to find suitable accommodation. For landlords, higher security deposits mean it may be harder to fill vacancies. This is where security deposit alternatives could provide a solution.
What is an alternative to security deposits?
Cost is the main issue with traditional security deposits. Many tenants do not have enough cash to cover the typical 1-3 months’ rent deposit. Although they will get the money back, barring no violations or damage, they still cannot touch that money until the end of their lease.
Advantages of SD Alternatives
In most cases, alternative solutions are win-win for both tenant and landlord. Landlords get similar, if not better, protection offered by security deposits and tenants do not have quite the financial burden.
Fill Vacancies Faster
It becomes easier to find tenants when the deposit alternative lowers the desposit they need to pay. Initial rental costs are lower, so more people will be interested. You can also stand out from the competition to attract more tenants.
It also becomes easier to accept tenants with lower credit scores. Security deposit replacement schemes allow people with lower credit scores to use the service they provide. This means, you could accept someone with a lower credit score, but excellent financial staus otherwise.
Protect Your Property Better
Many times, replacing traditional security deposit alternatives protect your property extremely well. For example, deposit insurance could cover damages for more than a traditional deposit. Some insurance plans can cover up to $5000 in damages. These premiums can be based on rental history, pets, credit history and other factors.
Another popular alternative is a surety bond, which is a fraction of the traditional deposit cost. The tenant pays a fee, which could reach 18% less than the usual cash amount. There could also be a small monthly charge while the tenant occupies the rental. If there are damages, the bond issuer pays the cost and you do not have resolve issues directly with the tenants.
Let Renters Suit Their Circumstances
Alternatives makes you a better landlord. Being more affordable up front is a big advantage for many prospective tenants.
Some people may opt to choose the traditional deposit, but many will choose from other options. With the economy changing, offering options makes your company more attractive from a financial point of view.
Disadvantages?
For tenants, the fact that they do not get money back at the end could be a sticking point. No matter what, even if they leave the place in pristine condition, they do not get anything back. They also have to pay back the bond company for damages, and this could end up being more expensive for them.
They could also take one alternative option while thinking they chose another. If they chose a surety bond and thought they got deposit coverage, they may be shocked when they are billed for damages.
Make sure you inform each prospective tenant of the exact alternative and the implications of each.
Should You Accept Alternatives to Security Deposits
The rental industry is slowly starting to accept alternative options to traditional security deposits. They are more cost-effective for tenants and cover landlords better in case of damage.
For most, these options are great ideas to protect yourself against financial loss caused by a tenant.
