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Are There Alternatives to Standard Security Deposit?

North Hills Landlord Offering Tenants a Deposit AlternativeIf you’ve owned a North Hills rental property for a significant amount of time, you already understand the meaning of collecting a security deposit from your tenants. It’s a broadly utilized practice for a reason: it may protect you from losing money if your tenant damages your property or stops paying their rent. Nonetheless, just because a security deposit is traditional doesn’t mean it is required or even necessary.

Many landlords are currently examining the benefits of security deposit alternatives. If you have problems finding tenants or want to have more applicants to choose from, offering an alternative to a security deposit may be ideal.

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 troublesome. Assume you regularly require a large security deposit to lease your property. In that event, it’s essential to know that doing so will reduce the number of applications you receive and may cause your property to sit vacant for longer.

This is particularly evident when the economy is trending downward. When this happens, some landlords discover 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 regularly 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 normally hold up well in court.
  • Credit Authorization Services. While a thorough credit and background check is an imperative aspect of any tenant screening, some landlords are starting to accept a credit authorization rather than a security deposit.
  • Lease Insurance. A relatively modern 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

There are a couple of potential pitfalls associated with these alternatives, making it imperative to consider everything carefully before picking which way to go. When tenants purchase a surety bond, they won’t get any portion of that back, no matter 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 challenging 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 regularly quick and easy to access, while a bond or claim may take longer to process, delaying funds for repairs. In case you don’t prefer to wait, you may have to pay for repairs out of pocket. That may not bother some landlords, but for others, it could cause any number of headaches.


If you’re searching for methods to find better tenants and screen them more efficiently, try giving Real Property Management West San Fernando Valley a call. Our North Hills property management professionals can help you obtain and maintain excellent tenants and maximize your rental property’s potential. Call us at 818-727-0100 or contact us online.

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