In the world of real estate, things aren’t always black and white. As a landlord, it’s likely that you’ll have to deal with situations that leave you in unfamiliar territory. Security deposits are no exception.
Though it’s not ideal, some potential renters, who are in otherwise good standing, might ask for rent deposit help. This could be viewed as a red flag, but it’s not always an indication of a bad tenant. Given that the current climate is unprecedented, you might be wondering how you can and should assist.
Here are the top ways to provide tenants help with the security deposit.
Option 1: Create a Payment Plan
In the wake of the pandemic, the economy has ground to a screeching halt causing the unemployment rate to skyrocket. As many people struggle to get back on their feet, a security deposit may be an expense that’s difficult to pay upfront.
One thing you can do to help is offer a payment plan to ease the burden for your renter. The deposit can be split in a myriad of ways: over the next quarter, six months, or even a year.
Another option is to divide up the cost by splitting it into two payments; one at the signing and one a month later. Keep in mind, your arrangements must be added to the lease agreement before the tenant signs it.
Option 2: Increase Rent
Another way to provide help with the security deposit is to increase your rent. This option is the most incremental and low-impact for tenants who may be struggling and need time to get back on their feet.
It’s important to remember to pull out the additional funds each month and set them aside for repairs or maintenance once your tenant moves out. An upside to this approach is that you don’t owe your tenants anything at the end of the lease term.
Option 3: Suggest Security Deposit Alternative
If you’re not in a position to offer a payment plan or increased rent, whether you’ve been burned before or just don’t want to risk it, consider suggesting security deposit alternative companies, like
RealPage Insurance,
Rhino,
The Guarantors, and
Jetty.
Essentially an insurance product, these companies take on the responsibility of the security deposit. Tenants, instead, make a monthly payment or pay an upfront sum that’s smaller than the security deposit to the insurance company. By the end of the lease, any damages or claims are paid for by the insurance company who will then bill the tenant. Although you won’t see an upfront sum of money, if your renter does incur damages, you can rest assured that they will be paid for by the provider, just make sure you work with reputable providers who haven’t imposed any restrictions on new policy sales or renewals, as this is usually an indication of potentially much larger problems.
Attract New Renters with a New Offering
Utilizing the services of security deposit alternative businesses might be an opportunity to incorporate a good, long-term amenity that will be attractive to future renters. Though a concept that has been around for quite a while, security deposit alternative companies have been gaining popularity as they not only give tenants the ability to save money upfront, making your property more desirable, but can also offer additional incentives for landlords.
On average, Americans
pay 50% of their income in rent. Add to this the staggering number of individuals who are suddenly unemployed, and it’s a recipe for disaster. By offering renters this option, you’re
lowering the barrier of entry, making it easier for tenants to afford to move in without having to let go of a mass sum of cash during these perilous times.
The Ultimate Option to Protect Yourself
So, what’s the best route to accommodate the tenant’s shifting needs and your own business? By offering potential tenants options. With the price of rent surging and the economy taking a hit, it may leave some quality, reliable tenants without the ability to cover a costly security deposit. By offering the opportunity to pay non-traditionally, you might see more renters and less vacancies.
With that said, the economic downturn can affect more than just potential tenants. You may see current renters lose their jobs, resulting in them defaulting on rent.
Consider taking out a rent guarantee insurance policy with
Steady, which can protect you against loss of rent if a tenant defaults. More specifically, Steady offers landlords customizable rent default insurance policies that can ensure your cash flow with a policy tailored to your needs, for one or a thousand properties.
Securing a policy through Steady is an important step to securing your income, and is crucial — no matter the economic conditions.