If you’ve owned a Farmingdale rental property for any duration of time, you already value the importance of collecting a security deposit from your tenants. It’s standard practice for a reason: it may protect you from losing money if your tenant damages your property or stops paying their rent. But just because a security deposit is traditional doesn’t mean it is compulsory or even necessary.
Most landlords are now studying the benefits of security deposit alternatives. If you are facing difficulty finding tenants or want to have more applicants to choose from, providing an alternative to a security deposit may be the solution.
Why Consider Alternatives?
Numerous 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. Let’s say you usually require a large security deposit to lease your property. Therefore, it’s vital 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 doubly important when the economy is trending downward. When this happens, some 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 typically far less costly 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 typically hold up well in court.
- Credit Authorization Services. Even though a thorough credit and background check is a vital element of any tenant screening, some landlords are now accepting a credit authorization instead of a security deposit.
- Lease Insurance. A relatively recent 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.
These alternatives include a couple of potential pitfalls, so it is critical to consider everything carefully before selecting which way 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 harder for landlords to collect from the tenant, especially if the claim for loss or damages exceeds any predetermined amounts. And after that, there is the turnaround time to contemplate. A security deposit is generally quick and easy to access, while a bond or claim may take longer to process, postponing funds for repairs. If you don’t want to wait, you may wind up paying for repairs out of pocket. Some landlords may not be bothered by this, but for others, but it may create a couple of headaches.
If you’re searching for a better method to locate better tenants and screen them more efficiently, consider giving Real Property Management Landmark a call. Our Farmingdale property management professionals can help you entice and retain great tenants and maximize your rental property’s potential. Call us at 516-522-2859 or contact us online.
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