If you’ve owned a New London rental property for any duration of time, you already know the meaning of collecting a security deposit from your tenants. It’s a commonly-used strategy for a reason: it may protect you from losing money if your tenant damages your property or stops paying their rent. Nevertheless, just because a security deposit is traditional doesn’t mean it is needed or even necessary.
Numerous landlords are now exploring the advantages of security deposit alternatives. If you are having difficulty finding tenants or need to have more applicants to choose from, providing an alternative to a security deposit may be suitable for you.
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 hard. Imagine you usually require a large security deposit to lease your property. For that reason, it’s necessary to know 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 occurs, some landlords discover innovative 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 usually cost much 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 usually hold up well in court.
- Credit Authorization Services. Even though a thorough credit and background check must be included in every tenant screening, other landlords are beginning to accept a credit authorization instead 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 couple of potential pitfalls come with these alternatives, making it essential to consider everything carefully before choosing which option to go with. When tenants purchase a surety bond, they won’t get any portion of that back, despite how well they follow the terms of their lease. That may make some tenants hesitate, even if the bond is less money than a security deposit would be.
It may also be difficult 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 think. A security deposit is usually quick and easy to access, while a bond or claim may take longer to process, postponing funds for repairs. If you don’t like to wait, you may probably have to pay for repairs out of pocket. That may not worry other landlords, but for some, it may create headaches.
If you’re searching for alternatives to locate better tenants and screen them more efficiently, think about giving Real Property Management Hartford Metro/Greater New London a call. Our New London property management professionals can help you recruit and keep excellent tenants and maximize your rental property’s potential. Call us at 860-436-9955 or contact us online.
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