Security deposit alternatives gaining ground in rental industry


HOUSING WIRE (JULY 27, 2018) – Changing regulatory climate, burdensome bad debt and increased efficiency are all reasons property managers eschewing traditional security deposits.

A security deposit alternative is essentially the replacement of a standard security deposit with a one-time premium that covers losses in the event that a resident leaves a unit in shambles or walks out on his or her lease prematurely.

Employing a security deposit alternative does two main things: eliminates bad debt and lowers move-in costs.

According to Tom Schickel, vice president and general manager at DepositIQ, a subsidiary of RealPage, multifamily operators will continue to show interest in security deposit alternatives as the old way passes away and more municipalities put restrictions on how much properties can take for a security deposit. The most recent example comes from New York City where Comptroller Scott Stringer has been kicking around the idea of implementing a one month’s rent maximum for security deposits. This adds complexity to a property manager’s job, and security deposit alternatives have quickly established themselves as a viable solution for the added complexity.

“If you take the current standard refundable deposit, from an owner’s standpoint, you are taking the deposit; you are depositing it into the bank; you are having to pay interest in a lot of jurisdictions, refund or return interest, sometimes on an annual basis even if the resident still lives there; and then the vast majority of the time you’re returning the deposits,” Schickel told HousingWire.

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