As almost anyone who has worked in multifamily will tell you, this industry can be very slow to embrace change.
Security deposits – and, to a lesser extent, surety bonds – have long been part of apartment operations, and it’s difficult for many property managers to imagine life without them.
However, some forward-thinking operators across the country have eliminated security deposits and surety bonds entirely. In the face of unpredictable events, such as the coronavirus pandemic that has cast the multifamily industry in a cloud of uncertainty, operators have been forced to adjust their current operations in order to better protect both their renters and properties. Subsequently, many have turned to lease insurance.
Lease insurance provides long-term, reliable protection, putting multifamily operators in a stronger position than either security deposits or surety bonds can provide. Especially in these unprecedented times, multifamily operators must adapt quickly with long-term solutions that protect themselves and support their residents.
Below are the top four benefits of using lease insurance for rental housing:
The COVID-19 pandemic has brought a great deal of uncertainty to the multifamily industry as the economy screeched to a halt and left many residents jobless. Lease insurance provides owners and operators with the financial protection needed when unexpected events hamstring residents’ ability to pay their rent.
On the other hand, operators often find that security deposits and surety bonds are inadequate resources in the face of severe rent loss and physical damage caused by residents. As an example, while the average security deposit in the US is roughly $500-750, the standard LeaseLock lease insurance plan provides $5,000 of coverage against missed rent and damage on every lease.
Security deposits require applicants to make a large upfront payment – one that can easily total thousands of dollars – before moving in. But in today’s environment of flat incomes and meager personal savings, that’s something many applicants simply can’t afford. Others may have to delay their move-in to save or borrow the needed funds.
Communities that reduce the cost of moving into a new home gain a real competitive advantage, especially those that clearly market themselves as a Zero Deposit community. Properties with no upfront deposit required at move-in experience more prospect traffic, faster move-ins, and higher conversion rates. For example, since ROCO Real Estate replaced security deposits with lease insurance, the company has seen an increase of 10 to 20 leads per property per week, while First Communities saw a 9-day faster lead-to-move-in cycle with lease insurance.
Managing security deposits and surety bonds can be a serious hassle for community associates. In the case of security deposits, state regulations may require them to be kept in separate bank accounts and reconciled every month.
Additionally, when a resident is moving out, associates spend a considerable amount of time determining the amount of the security deposit refund and then dealing with the renter when the resident is inevitably upset about the refund amount. Surety bonds must be sold by onsite staff, and don’t eliminate deposit administration costs. Lease insurance, on the other hand, eliminates deposit administration.
It’s one of the laws of physics in multifamily: most residents get upset about deductions from their security deposit. Even with surety bonds, the bonding company will seek payment from the renter for any missed rent or damages to their apartment, which will likewise cause frustration.
And when renters are disgruntled about their deposit deductions or having to repay a bonding company, they take to Yelp, Google, Facebook, ApartmentRatings.com, ILSs, and other sites to post angry and negative reviews.
By eliminating security deposits entirely and replacing them with lease insurance, renters are more likely to write positive reviews touting the simplicity and affordability of a Zero Deposit move-in, and the ease of their move-out experience.
Lease insurance is gaining popularity in the apartment industry as more operators begin to truly understand the benefits of moving away from security deposits and surety bonds completely. When it comes to protecting your properties, lease insurance offers the financial protection apartment owners need while also providing affordable living options for renters.
Just as operators have come to embrace renter’s insurance, we believe lease insurance will emerge as the leading replacement to security deposits. And as nationwide momentum moves towards Zero Deposit communities, the mutual benefits for both renters and operators will increase with it.