As the U.S. economy continues its slow crawl back to a full recovery—estimated by some to last well into 2022—several developments in the rental property industry brought about by the COVID pandemic are gaining steam. From remote payments to virtual touring, perhaps none is progressing faster and will have a more lasting impact, than the continued push for security deposit alternatives.
Continued legislative initiatives
Bloomberg recently estimated that $45 billion is locked up in residential security deposits. Many lawmakers see this as money that could be better spent by residents on goods and services that will propel the economy forward. At least one state has issued an executive order mandating that landlords allow renters to use their deposit money to help pay their rents.
New York has joined 10 other states and Washington, D.C., in passing laws limiting security deposits to no more than one month’s rent. And not long ago, the Cincinnati City Council passed a law that requires landlords managing 25 units or more to offer residents an alternative to a cash payment for a security deposit.
But perhaps the most aggressive action seen to date has been the advancement of Pennsylvania House Bill 2427 which sets the stage for total deposit replacement. Similar to other legislation, HB 2427 would require landlords charging security deposits to offer prospects some type of an alternative, or completely do away with security deposits altogether by offering a lease insurance option. Currently, the three deposit alternatives and replacements that are being made available are:
Deposit installment plans—where the resident pays the security deposit in monthly installments over the course of a minimum of three months.
Lease insurance—which eliminates deposits and insures the property on lease signing. Leases would be protected up to a chosen coverage amount for loss of rent, damage and other charges a refundable deposit would normally cover.
Surety bonds—requiring a renter to pay a one-time, non-refundable fee to purchase a surety bond at time of move-in. The coverage is typically the same amount as the refundable deposit and provides protection for loss of rent, damage and other charges a refundable deposit would normally cover.
New legislative efforts, combined with resident desire to keep upfront funds, has seen the traditional security deposit increasingly give way to one deposit alternative in particular: deposit insurance.
Deposit insurance is an emerging type of security deposit. For a growing number of renters, the indemnity paid in monthly installments has become a much more desirable alternative to upfront deposits.
Deposit insurance transfers resident risk and protects property
RealPage® Deposit Insurance, which transfers the resident risk to an insurance carrier, is gaining momentum as it provides protection for the property and a lower-cost option for the resident. Depending on the policy, residents pay a small monthly non-refundable premium (about $10) and the property can recoup damages, loss of rent, and fees, up to the policy limit from the insurance carrier in the event of a loss.
It’s a win-win: A deposit insurance solution will allow a property to offer a more competitive move-in option that increases leasing velocity and also decreases resident-caused move-out losses.
RealPage Deposit Insurance is a deposit replacement solution that is a true risk transfer, greatly reducing resident-caused losses from rent, damage, and other fees. Among the benefits for properties are guaranteed deposit replacement, greater property protection, and a stream of ancillary income of up to $48 per active policy per year.
The marketing advantage that provides greater protection
Through deposit insurance, property managers can bolster marketing efforts with advertised lower move-in costs because deposit insurance is paid monthly. The resident still has to fulfill their lease agreement and be a good steward of the apartment but can enjoy the benefits of a much lower cost at lease signing.
RealPage Deposit Insurance reduces resident move-in costs by as much as 300 percent the first lease year. A typical policy costs a resident around $10 a month compared to a $500 refundable deposit.
The solution is quickly becoming the new norm as properties continue to see deposit alternatives like Deposit Insurance as a way to attract and retain renters while ensuring greater protection. Property managers are also trying to figure out how they can protect assets, so Deposit Insurance is a solution people are looking at differently.