If you’ve owned a River Park rental property for a significant time, you already recognize the importance of collecting a security deposit from your tenants. It’s a usually-used technique for a reason: it may protect you from losing money if your tenant damages your property or stops paying their rent. However, just because a security deposit is traditional doesn’t mean it is compulsory or even necessary.
Various landlords are currently studying the perks of security deposit alternatives. If you are encountering problems finding tenants or want to have more applicants to choose from, presenting an alternative to a security deposit may be ideal 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 difficult. Suppose you typically require a large security deposit to lease your property. In that case, it’s important to note that doing so will reduce the number of applications you receive and may cause your property to sit vacant for longer.
This is particularly relevant when the economy is trending downward. When this arises, some landlords find 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 tend to cost far less 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. Such contracts are legally binding and commonly hold up well in court.
- Credit Authorization Services. Although a thorough credit and background check needs to be part of any tenant screening, other landlords are starting to accept a credit authorization in lieu of a security deposit.
- Lease Insurance. A relatively new 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
A few potential pitfalls come with these alternatives, making it vital to consider everything carefully before selecting 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 challenging for landlords to collect from the tenant, especially if the claim for loss or damages exceeds any predetermined amounts. And from then on, there is the turnaround time to think. A security deposit is commonly 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. That may not be a problem for some landlords, but for others, it could produce any number of headaches.
If you’re exploring approaches to find better tenants and screen them more efficiently, try giving Real Property Management Platinum a call. Our River Park property management professionals can help you acquire and retain great tenants and maximize your rental property’s potential. Call us at 559-425-8550 or contact us online.
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