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Are There Alternatives to Standard Security Deposit?

Newark Landlord Offering Tenants a Deposit AlternativeIf you’ve owned a Newark rental property for any length of time, you already understand the meaning of collecting a security deposit from your tenants. It’s a widely-used practice for a reason: it may protect you from losing money if your tenant damages your property or stops paying their rent. Nevertheless, just because a security deposit is traditional doesn’t mean it is required or even necessary.

Many landlords are now considering the benefits of security deposit alternatives. If you are having trouble finding tenants or want to have more applicants to choose from, offering an alternative to a security deposit may be right for you.

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 difficult. Suppose you typically require a large security deposit to lease your property. In that case, it’s important to note 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 happens, some landlords find creative 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 typically cost 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 typically hold up well in court.
  • Credit Authorization Services. While a thorough credit and background check should be the portion of any tenant screening, some landlords are starting to accept a credit authorization in place 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, making it significant to consider everything carefully before deciding which way to go. 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 harder 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 consider. A security deposit is typically quick and easy to access, while a bond or claim may take longer to process, deferring funds for repairs. If you don’t want to wait, you may end up paying for repairs out of pocket. That may not bother some landlords, but for others, it could cause any number of headaches.


If you’re looking for ways to find better tenants and screen them more efficiently, consider giving Real Property Management Masters a call. Our Newark property management professionals can help you attract and retain great tenants and maximize your rental property’s potential. Call us at 510-398-8704 or contact us online.

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