If you’ve owned a Weymouth rental property for a considerable length of time, you already understand the usefulness of collecting a security deposit from your tenants. It’s an often-used method for a reason: it may protect you from losing money if your tenant damages your property or quits paying their rent. Nevertheless, just because a security deposit is traditional doesn’t mean it is essential or even necessary.
Many landlords are actively exploring the benefits of security deposit alternatives. If you encounter problems finding tenants or want to have more applicants to choose from, giving an alternative to a security deposit may be perfect for you.
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 hard. Imagine you usually require a large security deposit to lease your property. For that reason, it’s critical 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 especially true when the economy is trending downward. When this arises, some landlords find 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 seem to be less expensive 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 generally hold up well in court.
- Credit Authorization Services. Although a thorough credit and background check is a vital component of any tenant screening, other landlords are starting 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 remains liable for all unpaid rent, legal fees, and repairs.
Potential Pitfalls
A few potential pitfalls emerge with these alternatives, making it crucial to consider everything carefully before determining which route to take. 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 troublesome for landlords to collect from the tenant, especially if the claim for loss or damages exceeds any predetermined amounts. And then, there is the turnaround time to contemplate. A security deposit is typically quick and easy to access, while a bond or claim may take longer to process, delaying funds for repairs. If you don’t want to wait, you may actually be spending for repairs out of pocket. That may not be an issue for some landlords, but for others, it could create some headaches.
If you’re seeking alternatives to find better tenants and screen them more efficiently, try giving Real Property Management Associates a call. Our Weymouth property management professionals can help you find and keep excellent tenants and maximize your rental property’s potential. Call us at 508-509-4485 or contact us online.
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