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Are There Alternatives to Standard Security Deposit?

Old Southwest Landlord Offering Tenants a Deposit AlternativeIf you’ve owned an Old Southwest rental property for any length of time, you definitely know the significance of collecting a security deposit from your tenants. It’s a commonly-used technique for a reason: it may protect you from losing money if your tenant damages your property or misses paying their rent. However, just because a security deposit is traditional doesn’t mean it is required or even necessary.

Many landlords are becoming more interested in the advantages of security deposit alternatives. If you are having trouble finding tenants or need more applicants to choose from, providing an alternative to a security deposit may be a good option.

Why Consider Alternatives?

Many 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 tough. Assume you often require a large security deposit to lease your property. In that case, it’s important to recognize that doing so will reduce the number of applications you receive and may cause your property to sit vacant for longer.

This is certainly relevant when the economy is trending downward. When this transpires, some landlords come up with 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 are often considerably 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. Such contracts are legally binding and generally hold up well in court.
  • Credit Authorization Services. While a thorough credit and background check must occur 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 few potential pitfalls come with these alternatives, so it is important to consider everything carefully before deciding which path you choose. When tenants purchase a surety bond, they won’t get any portion of that back without regard to 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 then, there is the turnaround time to ponder. A security deposit is commonly quick and easy to access, while a bond or claim may take longer to process, postponing funds for repairs. If you dislike waiting, you may probably have to pay for repairs out of pocket. That may not concern other landlords, but for other people, it may cause any headaches.


If you’re searching for ways to locate better tenants and screen them more efficiently, think about giving Real Property Management Colonial a call. Our Old Southwest property management professionals can assist you in recruiting and maintaining quality tenants and maximize your rental property’s potential. Call us at 540-595-7411 or contact us online.

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