Nearly 90% of renters pay a security deposit of at least $600.
If you're a landlord, security deposits are an important part of doing business. They act as insurance against the threat of a tenant missing rent payments or causing property damage.
Although they're an important safety net, there are downsides to asking for security deposits. In today's post, we'll go over some security deposit alternatives to consider in 2024. Protecting your investment is crucial, but keep reading and you'll see that there are multiple ways to do so.
The Downsides of Security Deposits
The perks of security deposits are obvious. If a tenant costs you money unnecessarily, whether it be property damage or missed rent, you can take it out of their security deposit.
What's less obvious is what makes them detrimental to your rental property. While most tenants expect to pay security deposits, the added cost can be prohibitive for some candidates. If rent is one amount and then an expensive security deposit is suddenly added, they may decide against applying.
In addition, dealing with security deposit deductions can be a hassle. Your tenant may dispute your deductions and go as far as to take you to court to retrieve them.
Security Deposit Alternatives
So, how do you protect your property without a security deposit? There are a few key methods that do this more subtly.
Insurance
It's not always property damage that costs landlords money. More frequently, failure to pay rent is the reason landlords are forced to keep security deposits. One of the ways you can combat this is to get lease insurance, otherwise known as "rental guarantee insurance".
This policy gives the landlord coverage in the event of missed rent. The tenant will remain liable, but you won't suffer financially as a result of their delinquency.
Clauses In the Lease
If you think your security deposit is scaring perfectly good applicants away, you can choose to include a damage clause in your lease agreement. Adding verbiage stating that the tenant is responsible for paying for any damages they cause.
You can even have them sign a separate "pay-per-damage" contract. Having this contract will hold your tenant accountable and hold up in court if a tenant ever disputes your damage claims.
Tenant Screening
Damage mitigation is important, but prevention is even better. Thoroughly screening your applicants will ensure you only end up with the best tenants.
Choosing tenants can be tricky, so looking into their financial and criminal backgrounds is the only way you're guaranteed good ones. You can also speak to their former landlords to get a sense of how they'll be in your rental.
Protecting Your Investment with Property Management
Protecting your property with security deposits is a perfectly normal thing for landlords to do, and tenants are generally okay with it. If it doesn't sit right with you, however, it's good to know you've got options.
Another option you have is to let someone else handle it. Allegiant Management Group is Kissimmee's premier property management company, offering comprehensive services for landlords. To learn more about how we can protect and manage your investment, contact us today.
