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Are There Alternatives to Standard Security Deposit?

Gladstone Landlord Offering Tenants a Deposit AlternativeIf you’ve owned a Gladstone rental property for an extended time, you already recognize the necessity of collecting a security deposit from your tenants. It’s a commonly used practice for a reason: it may protect you from losing money if your tenant damages your property or stops paying their rent. However, just because a security deposit is traditional doesn’t mean it is needed or even necessary.

Numerous landlords are currently considering the benefits of security deposit alternatives. If you experience problems finding tenants or want to have more applicants to choose from, giving an alternative to a security deposit may be suitable for you.

Why Consider Alternatives?

Numerous 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. Imagine you normally require a large security deposit to lease your property. In that case, you must understand that doing so will reduce the number of applications you receive and may cause your property to sit vacant for longer.

This is especially relevant when the economy is trending downward. When this occurs, some landlords find 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 frequently cost significantly 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 commonly hold up well in court.
  • Credit Authorization Services. While a thorough credit and background check is a significant feature of any tenant screening, some landlords are starting to accept a credit authorization as an alternative to 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 remains liable for all unpaid rent, legal fees, and repairs.

Potential Pitfalls

There are some potential pitfalls associated with these alternatives, making it important 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 though the bond is less money than a security deposit would be.

It may also be tough for landlords to collect from the tenant, especially if the claim for loss or damages exceeds any predetermined amounts. And afterward, 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 create any number of headaches.


If you’re searching for solutions to identify better tenants and screen them more efficiently, try giving Real Property Management Principles a call. Our Gladstone property management professionals can help you lure and retain excellent tenants and maximize your rental property’s potential. Call us at 816-305-6476 or contact us online.

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