If you’ve owned an Ellicott City rental property for any stretch of time, you already recognize the significance of collecting a security deposit from your tenants. It’s a traditional practice for a reason: it may protect you from losing money if your tenant damages your property or quits paying their rent. Nonetheless, just because a security deposit is traditional doesn’t mean it is obligatory or even necessary.
Several landlords are currently thinking about the advantages of security deposit alternatives. If you are experiencing difficulty finding tenants or want to have more applicants to choose from, providing an alternative to a security deposit may be the best for you.
Why Consider Alternatives?
Several 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 problematic. Suppose you normally require a large security deposit to lease your property. Therefore, it’s imperative to understand that doing so will reduce the number of applications you receive and may cause your property to sit vacant for longer.
This is particularly obvious when the economy is trending downward. When this transpires, a few landlords seek 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 normally charge 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 normally hold up well in court.
- Credit Authorization Services. While a thorough credit and background check ought to be essential for any tenant screening, a few landlords are starting to accept a credit authorization instead of a security deposit.
- Lease Insurance. A relatively modern 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.
Several potential pitfalls come with these alternatives, making it essential to consider everything carefully before deciding which direction to head. When tenants purchase a surety bond, they won’t get any portion of that back, regardless 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 problematic 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 contemplate. A security deposit is normally quick and easy to access, whereas a bond or claim may take longer to process, deferring funds for repairs. If you prefer not to wait, you may result in paying for repairs out of pocket. That may not worry some landlords, but for other people, it could generate quite a few headaches.
If you’re hunting for methods to find better tenants and screen them more efficiently, consider giving Real Property Management Metro a call. Our Ellicott City property management professionals can assist you with attracting and retaining good tenants and maximize your rental property’s potential. Call us at 410-290-3285 or contact us online.
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