Many landlords are currently thinking about the benefits of security deposit alternatives. If you are having trouble finding tenants or want to have more applicants to choose from, offering an alternative to a security deposit may be the best for you.
Why Consider Alternatives?
Various renters struggle to save enough money to pay a large security deposit upfront. While most people pay their bills on time and in full each month, the vast majority of Americans still live paycheck to paycheck, making saving money tough. Assume you frequently require a large security deposit to lease your property. For that reason, it’s imperative to remember that doing so will reduce the number of applications you receive and may cause your property to sit vacant for longer.
This is particularly the case when the economy is trending downward. When this transpires, some landlords seek efficient ways to overcome these difficulties and get their rentals leased.
Some of the most popular alternatives to the traditional security deposit include:
- Surety Bonds. A surety bond is an insurance product purchased by a tenant in place of a security deposit. These bonds are significantly cheaper than a security deposit but can help offer landlords protection against monetary damages, which is the main function of a cash security deposit.
- Pay-Per-Damage Arrangements. A pay-per-damage arrangement is a contractual agreement between a tenant and landlord where the tenant agrees to pay for actual loss or repairs. These contracts are legally binding and normally hold up well in court.
- Credit Authorization Services. Even though a thorough credit and background check is an essential feature of any tenant screening, some landlords are now accepting a credit authorization in place of a security deposit.
- Lease Insurance. A relatively modern alternative in American rental markets is lease insurance or rent guarantee insurance. This insurance guarantees coverage for a landlord in the event the tenant stops paying rent. The tenant is still liable for all unpaid rent, legal fees, and repairs.
Potential Pitfalls
These alternatives feature a handful of potential pitfalls, so it is necessary to consider everything carefully before picking which path to go. When tenants purchase a surety bond, they won’t get any portion of that back, no matter how well they follow the terms of their lease. That can make some tenants hesitate, even if the bond is less money than a security deposit would be.
It may also be more burdensome for landlords to collect from the tenant, especially if the claim for loss or damages exceeds any predetermined amounts. And after that, there is a turnaround time to consider. A security deposit is usually quick and easy to access, while a bond or claim may take longer to process, delaying funds for repairs. If you don’t want to wait, you may end up paying for repairs out of pocket. Several landlords may not be affected by this, but for others, it may generate a couple of headaches.
If you’re seeking a technique to identify tenants and screen them more efficiently, consider giving Real Property Management Key Response a call. Our Hendersonville property management professionals can help you lure and keep great tenants and maximize your rental property’s potential. Call us at 615-953-8700 or contact us online.