Several landlords are now contemplating the advantages of security deposit alternatives. If you are having problems finding tenants or would like to have more applicants to choose from, presenting an alternative to a security deposit may be a smart idea.
Why Consider Alternatives?
Most 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 impossible. Presume you often require a large security deposit to lease your property. In that instance, you need to keep in mind that doing so will reduce the number of applications you receive and may cause your property to sit vacant for longer.
This is especially true when the economy is trending downward. When this occurs, several landlords find clever 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 usually more affordable 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 typically hold up well in court.
- Credit Authorization Services. Although a thorough credit and background check is an essential component of any tenant screening, some landlords are beginning to accept credit authorization as 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
These alternatives have a few potential pitfalls, so it is important to consider everything carefully before choosing which way to go. When tenants purchase a surety bond, they won’t get any portion of that back, irrespective of 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 much harder for landlords to collect from the tenant, especially if the claim for loss or damages exceeds any predetermined amounts. And later on, there is a turnaround time to consider. A security deposit is usually quick and easy to access, whereas a bond or claim may take longer to process, delaying funds for repairs. If you hate waiting, you may have to pay for repairs out of pocket. Some landlords may be unconcerned with this, but it may cause some headaches for other people.
If you’re looking for ways to locate better tenants and screen them more efficiently, consider giving Real Property Management Diamond a call. Our Millboro property management professionals can assist you in magnetizing and retaining great tenants and maximize your rental property’s potential. Call us at 302-313-7700 or contact us online.