If you’ve owned a Lynbrook rental property for any time, you already recognize the meaning of collecting a security deposit from your tenants. It’s a long-established practice for a reason: it may protect you from losing money if your tenant damages your property or quits paying their rent. However, just because a security deposit is traditional doesn’t mean it is mandatory or even necessary.
Several landlords are now thinking about the advantages of security deposit alternatives. If you are having problems finding tenants or want to have more applicants to choose from, providing an alternative to a security deposit may be suitable for you.
Why Consider Alternatives?
Many 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. Imagine you always require a large security deposit to lease your property. In that case, you must 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 true when the economy is trending downward. When this transpires, a few landlords search for effective 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 far less pricey 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 usually hold up well in court.
- Credit Authorization Services. While a thorough credit and background check is an important piece of any tenant screening, a few landlords are starting to accept a credit authorization as opposed to 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 remains liable for all unpaid rent, legal fees, and repairs.
Potential Pitfalls
Many potential pitfalls come with these alternatives, making it essential to consider everything carefully before opting for 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 challenging for landlords to collect from the tenant, especially if the claim for loss or damages exceeds any predetermined amounts. And afterward, there is the turnaround time to consider. A security deposit is generally quick and easy to access, whereas a bond or claim may take longer to process, prolonging access to funds for repairs. If you choose not to wait, you may end up spending for repairs out of pocket. That may not bother some landlords, but for others, it could bring quite a few headaches.
If you’re searching for ways to discover better tenants and screen them more efficiently, try giving Real Property Management Innovation a call. Our Lynbrook property management professionals can guide you with attracting and keeping excellent tenants and maximize your rental property’s potential. Call us at 516-570-9275 or contact us online.
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