3 Reasons Deposits Need Replacement—Not Alternatives [WHITE PAPER]

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With staff shortages being a top multifamily challenge, property management companies are looking to adopt processes and systems that improve operations—not strain them. This means operators will sometimes forgo financial opportunities if they think those opportunities will only add to property teams’ workloads.

So how can multifamily operators ease the lift for site teams while also improving financial performance?

The Multifamily Case for Total Deposit Replacement

In our newly released white paper, we explore why the industry needs to remove one particular risky financial instrument (security deposits) and replace with an optimally secure solution (lease insurance). We also outline the drawbacks when operators turn to “deposit alternative” products, as these seemingly “easy” fixes often only exacerbate the problem.

Finally, we describe three key benefits for operators when they completely eliminate deposits, including:

  1. Significant bad debt reduction
  2. Drastically less deposit administration and risk
  3. Improved customer experience

Below is a quick preview of the white paper content — to download, click the button below:

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3 Benefits of Replacing Deposits the Right Way

1. Recover Bad Debt

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While many operators may not think bad debt is a problem for their firm, most have at least some level of bad debt. This means there’s an opportunity to convert that bad debt into dollars that fall directly into the operator’s bottom line.

Multifamily communities have primarily managed bad debt via three levers: screening, deposits, and collections. In particular, security deposits are a crude form of insurance that often leave operators with expenses greater than the deposit after move-out, which is why properties accrue bad debt.

To ensure operators don’t miss out on the opportunity to recover bad debt, properties need to instead insure as many leases as possible with a deposit waiver product. Ultimately, this arrangement achieves a powerful win-win of both affordability for residents and significantly more coverage for the owner.

2. Reduce Administration & Risk

On top of being pesky, security deposits introduce a great deal of risk. Renter’s Choice laws that require apartment operators to offer an alternative to a security deposit are restrictive and create additional administrative burdens for property teams, including more compliance complications. As a result, many operators are considering deposit alternatives without understanding the new risk associated with them.

risk-of-security-deposits-deposit-alternativesDeposit alternatives that are marketed as “security deposit insurance” leave operators exposed to substantial risk. In many cases, these “insurance products” are actually surety bonds which can create confusion and frustration when the bond company collects on renters after move-out.

It’s in the best interest of operators to avoid deposit alternatives and replace deposits with a true insurance program that takes the renter out of the equation, thus minimizing the amount of risk and workload.

3. Improve Customer Experience

multifamily-deposits-bad-customer-experienceIn addition to creating administrative headaches, security deposits also have the potential to damage the resident experience. Between sticker shock at move-in and disputes at move-out, this creates a poor customer experience which can lead to negative online reviews for apartment communities.

While operators may consider implementing deposit alternatives to solve for this, these partial solutions wind up compounding the problem, as departing residents find out they’re responsible for paying the bond provider and may express their frustration in the form of negative reviews. Further, this method leaves the leasing transaction under the control of a third party, meaning operators are unable to protect the customer experience.

When the operator is insured though, residents don’t have to worry about unforeseen collections. This is another reason why ditching deposits entirely and replacing them with lease insurance is a better, more sustainable solution, as it lets operators control the customer experience.

Free White Paper: 3 Reasons Deposits Need Replacement—Not Alternatives

To learn how to move beyond deposits so your firm can boost financial performance, reduce the workload on your property teams, and improve your customer experience, download the white paper — click here.

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What’s New With LeaseLock? A Major Product Upgrade

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As 2021 comes to a close, multifamily operators are gearing up for what’s ahead in 2022. It’s also a time for us to reflect on all we’ve accomplished as an industry, from the opportunities identified to the challenges overcome.

This past year has been full of exciting changes for us at LeaseLock, including a major product advancement. With our latest platform upgrade, we’ve directly addressed client feedback to improve the product experience for our valued customers and ultimately empower more and more operators to eliminate deposits for good — all in the name of elevating asset performance and improving resident experience.

New LeaseLock Product Features

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It’s our mission to revolutionize the insurance and multifamily industries by building the world’s leading insurtech platform for real estate. Powered by insurance technology, LeaseLock is the only true deposit replacement solution on the market that gets operators out of the deposit business altogether. We’re doing that by constantly innovating and engineering our AI-powered lease insurance platform, and our latest product advancement is a testament to that commitment.

Here’s a preview of the major innovations we’ve been working on, as well as insights from our clients:

Single Limit Coverage & Exclusion Removals

In addition to rent and damage, LeaseLock now covers partial rent payments, pet damage, utility fees, eviction costs, termination fees, and late fees. The comprehensive protections consolidate coverage under a combined single limit, removing sub limits for damage and aligning with standard operating procedures for move-outs to improve debt recovery.

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Faster Claims Payouts & More Flexible Deadlines

Through this upgrade, we’ve drastically improved the claims experience with more flexible deadlines and expedited processing. By taking claims completely in-house, we now deliver claims payouts in as fast as 48 business hours. In addition, all insurance policies are covered by QBE, our trusted global insurance carrier, establishing strength and trust for LeaseLock clients to expand.

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AI-Powered Coverage Optimization & Risk Monitoring

We’ve developed a new AI-powered risk platform that optimizes coverage for each asset by analyzing historical financial performance data and continually monitors ongoing risk to adapt coverage. This flexible, customized coverage results in an average of 6x more protection compared to the average deposit or bond, thus reducing bad debt.

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No Resident Collections

To top it off, all our new updates come in a resident-friendly format. LeaseLock does not run collections against residents for claims paid to properties — unlike deposit alternatives which do collect against residents for claims paid. With LeaseLock, properties don’t have to worry about unhappy residents writing negative online reviews due to surprise collection attempts.

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What Are the LeaseLock Benefits for Multifamily Operators?

Now that we’ve introduced the upgrades to our core lease insurance platform, what key benefits do rental housing operators get with LeaseLock? Due to our industry-leading adoption rate of 92%, clients see the following 3 key benefits:

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  1. Unmatched Coverage, Less Bad Debt – Provides significantly more protection, reduces bad debt, and improves NOI.
  2. Reduced Deposit Administration & Risk – Drastically minimizes deposit administration while providing greater risk mitigation.
  3. Better Resident Experience – Delivers a simpler, more affordable move-in experience for residents while protecting your online reputation.

How Does LeaseLock Lease Insurance Work?

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Powered by AI, our insurance technology increases coverage and removes uncertainty by replacing security deposits and deposit alternatives with lease insurance. Operators receive $3,000 in rent loss and damage coverage for each new lease with the preferred plan. LeaseLock deploys within the native online leasing checkout, which puts the operator in charge of the transaction and creates a seamless experience — resulting in industry-leading conversion rates.

Claims are simple, with an expedited claims process that is as straightforward as handling cash — without the administrative headaches of cash deposits.

By replacing security deposits with insurance, owners and operators increase coverage levels while cutting risk and making housing more affordable. That’s a powerful win-win for the whole industry, and the reason top operators choose LeaseLock.

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Interested in learning more about our latest product upgrade or what LeaseLock can do for you? Request a demo – click here.

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Why Security Deposits & Surety Bonds Are Bad for Customer Experience

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In the previous two articles in this series, we outlined two reasons why multifamily operators should consign the use of security deposits to history.

First, we talked about how many operators are missing opportunities to eliminate bad debt and how, even in cases where they don’t have a lot of bad debt, there is usually still free money to be had. By insuring leases instead of burdening operators and renters with security deposits, operators can reduce bad debt risks and eliminate deposit headaches for good.

Next, we looked at the growing risk of deposits and deposit alternatives, explaining how operators get out from under the burden of administrative overhead and risk by replacing deposits completely. In that post, we also highlighted the different risks associated with some popular deposit alternative products.

One impact of security deposits is left for us to talk about, and it may be the most important one. The potential damage that they do to prospect and resident experiences.

Customer Experience at Move-In and Move Out

It is not hard to imagine how security deposits can negatively impact customer satisfaction. In fact, deposit requirements often leave a sour taste in your resident’s mouth, compromising a community’s value proposition and future marketing activities.

The biggest and most obvious issue is affordability. When renting an apartment entails paying a large lump sum upfront (typically equal to one month’s rent), there may be resulting sticker shock for some prospective renters. Deposit requirements shrink the pool of potential renters, and the problem will worsen as more and more competitor properties find ways to reduce deposit-related costs.

The other problem emerges when residents move out. From time to time, residents are surprised when they do not receive some or all of their security deposit refund. These can result in disputes (including legal disputes) when residents disagree with and are unpleasantly surprised by the amount (if any) of their refund.

Surprises like these tend to manifest as negative online reviews left by disgruntled residents. The prominence of online reviews as a data point for renters choosing a place to live has made reputation scores an all-important currency in apartment marketing. Operators need residents to post positive reviews after moving out. To this end, it makes sense to optimize the whole resident experience, not only because it’s the right thing to do but because it’s also in the community’s best interest.

The bottom line is that in a competitive market, no community should want to be more expensive or have lower review scores than its competitors. Security deposits put operators at risk on both fronts.

Why Insurance Is the Better Option

The problems that come with security deposits are exacerbated by some of the “deposit alternatives” that operators are currently considering. As we discussed in our last blog on this topic, most deposit alternatives are based on surety bonds and tend to be positioned as insurance products. Renters who purchase products like surety bonds are therefore led to believe that they are insured against potential damages or losses at the end of their residency, as they would be with a traditional deposit.

Sadly, that isn’t the way these surety bonds work at all: in fact, the bond provider retains the right to pursue the resident for any money that they, the provider, must pay to the multifamily community on behalf of the resident. When a departing resident learns they are responsible for paying the bond provider, it usually comes as a surprise, and is a natural motivation for a negative review, representing an unwelcome and unnecessary risk to the community’s online reputation.

The involvement of third parties in the deposit transaction raises a broader point about the prospect and resident experience. When a third party takes over part of the leasing transaction (which is what happens with most deposit alternatives), they also take a part in controlling the customer experience.

Given the time and effort operators invest in their leasing processes, this is a suboptimal approach and one that can go quite badly for our residents, especially in the case of collections described above.

A much better way of ridding properties of security deposits is to replace them entirely with lease insurance. When the operator is the one who’s insured, there is no need for residents to leave the leasing process (i.e., to go to a third-party site). Operators maintain complete control of the customer experience throughout the entire leasing process. They also enjoy vastly higher adoption rates, with average uptake rates well above 90%*.

The Win-Win

A participation rate over 90%* matters: it means that all but a few leases are ultimately free of deposits. It forms part of the community’s value proposition that all residents can consistently understand. It is a win for the overall customer experience, but above all else, it delivers a powerful win-win.

It’s a win for operators because true lease insurance increases coverage and lowers bad debt while ensuring a consistent and authentic customer experience. It’s a win for residents because it delivers greater housing affordability by removing the burdensome upfront security deposit. It also avoids the risk that a third-party surety bond company will collect on the resident if they (the bond company) has to pay the operator.

Deposit surprises are usually bad, whether it’s sticker shock during the move-in process or a move-out surprise. As we have argued throughout this series, it’s time to replace security deposits altogether. It’s time to embrace true insurance products that can deliver the customer experience and performance improvements that are already benefiting a growing number of multifamily operators.

*Communities adopting LeaseLock’s lease insurance achieve average adoption rates of 92%

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The Growing Risk of Deposits and Deposit Alternatives

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In our last blog, we discussed how operators are reducing bad debt by insuring leases instead of taking security deposits. The bad debt that we discussed in that post ought to be enough to motivate any operator to rid themselves of deposits for good — but it is not the only reason to do it.

For operators, security deposits are becoming more burdensome and risky. For residents, some of the alternatives to security deposits are introducing new types of risk. Below, we will seek to understand these risks and how to avoid them.

Security Deposits Are Getting Less Secure

An increasing number of state and city legislatures are adopting laws that mandate that apartment operators offer an alternative to a security deposit (nicknamed “Renters Choice” laws). The intent of these laws is to make rental housing more affordable, which is, of course, a good thing. As with most legislation, however, the devil is in the details.

The laws implemented by states and municipalities apply multiple restrictions to security deposits and vary substantially from legislature to legislature. Some limit the maximum size of a deposit or restrict the window in which deposit refunds must be distributed. In some cases, the laws require operators to offer deposit installment plans. We will not go any deeper into individual laws in this post, but visit the deposit laws section of our blog for more details.

It is not hard to imagine how quickly the rules pile up for a multifamily operator with communities in more than one city. Each new law creates a need for a policy change by the operator, and each policy change adds complexity to the process of deposit administration. The added complexity costs time and increases the likelihood that a property may fail to comply with a new law, resulting in potential lawsuits. As one senior leader of a major multifamily operator recently told us, “we are now being sued every week over $500 deposits.”

The growing risk and administrative burden of deposits is a concern already on the radar of most operators. A growing number are looking to find deposit alternatives, often because the laws say that they have to. But what relatively few operators understand is the new risk associated with some popular forms of deposit alternative.

Read the Fine Print!

A recent article in urban development publication Shelterforce summarized the developing story of deposit alternatives. It’s a story that multifamily operators should take the time to understand. “Renters Choice” laws have been becoming more frequent but are still relatively new (Cincinnati’s was the first, dating back to April 2020).

Because the legislation is recent, the level of understanding about how some deposit alternatives work is still relatively low. For example, only the most diligent renters will spot that the products being marketed directly to them as “insurance” actually leave them exposed to substantial risk. The article points out how most security deposit alternatives do not provide renters with protection from claims, adding “tenants using products like Rhino remain fully liable for any claims paid to their landlords.”

Although deposit alternatives are marketed as “insurance products,” in reality, they are “surety bonds,” i.e., they guarantee the bonded party’s contractual obligations (the renter’s financial obligations to their landlord). Unlike insurance products, the premium paid to the provider does not guarantee a level of coverage. Rather, if the landlord files a claim, the bond company pays the landlord but may then seek repayment from the renter. Given that the product is marketed to the resident as an “insurance” product, this comes as an unpleasant surprise, especially since it can impact their credit score.

Why Partial Solutions Don’t Help

The best way for operators to avoid the problems described above is to replace deposits with insurance. Replacing deposits, rather than just offering an alternative, means driving the highest possible participation in a true insurance program. High participation minimizes the number of leases subject to deposits and the associated risk and workload. Deposit alternative products tend to have relatively low, usually less than 50% adoption rates, which leaves most leases unchanged.

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Insurance exists to shift risk from the policyholder to the carrier, and this is not how surety bonds work. In considering deposit alternatives, many operators misunderstand that it is their risk that is being covered (not the renter’s). Therefore, the correct way to replace security deposits is for the operator to insure their leases, effectively taking the renter out of the equation.

As we mentioned in our last post, operators can recoup the cost of the insurance from the resident by offering them an insurance waiver product (usually a small monthly fee that covers the cost that the operator is paying to insure the lease). The critical difference with this arrangement is that the fee is a transaction between the renter and the landlord, and does not make the renter liable for claims in the way that surety bonds do.

Through true lease insurance, rather than surety bonds, operators can maximize coverage while removing the possibility of the provider collecting on a resident after move-out. This has important implications for resident experience, which is a topic to which we cover in our next post.

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The Bad Debt Opportunity Most Operators Are Still Missing

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In today’s multifamily market, the issue of bad debt is not always top of mind. Eye-popping year-over-year rent increases and uncomfortably high occupancies create a natural tide of financial optimism. If you asked most operators, they’d tell you, “We don’t have a bad debt problem.”

But consider for a moment what that means. Thinking that you do not have a bad debt problem does not mean that you do not have bad debt; it means that the bad debt is at a level that your organization finds acceptable. It may not be a problem per se, but in the vast majority of cases, bad debt is an opportunity.

Is Bad Debt a Problem or an Opportunity?

multifamily-bad-debt-opportunity-example

The simple example above shows a regular, mid-priced 300 unit multifamily community. A “normal” level of bad debt is typically in the 2% range, or about $80,000 per year for this property. That may be an acceptable level of bad debt, but it’s still a significant amount of money that should be yours, but isn’t realized. It’s a check that an operator could be writing to investors each month but isn’t.

Yet, time and again, operators leave the opportunity untapped because it “Isn’t a big enough problem.” But should that matter if it’s an easy problem to solve?

How Multifamily Manages Bad Debt Today

There are three levers available to multifamily operators to manage bad debt: 1) screening, 2) deposits and bonds, and 3) collections.

  1. Screening – Screening is a vital step in the leasing process, and one that goes some way towards reducing the likelihood of bad debt. But there is a limit to how strict your screening criteria can be. Imagine trying to address the $80k/year of bad debt in the illustration above through tighter screening. The community’s criteria would have to be restrictive to the point of not allowing enough signed leases to fill the community.
  2. Deposits – Inevitably, there will be instances where a resident will leave owing debt or having done costly damage to their unit. It is for cases such as these that operators have collected deposits since time immemorial. But what happens when the deposit amount does not cover the damage or the lost rent? That is how the $80k in our example accumulates. Even when surety bonds are offered as an alternative to deposits, they only cover the total amount of the security deposit. And low resident adoption of a bond program leaves many of the community’s leases “protected” by what was meant to be replaced in the first place (security deposits).
  3. Collections – Collections can sometimes claw back some of the cost of damages and lost rent, but recovery rates greater than 10% are rare in our industry. And when recoveries are made, they have to be shared with the collections agency. So the impact on bad debt is usually minimal.

Replace Security Deposits & Surety Bonds, Recover Bad Debt

Of the three bad debt levers mentioned above, only one offers the opportunity to recover the $80k in our example. It involves a fundamental rethink of the security deposit. The rethink entails seeing deposits (and surety bonds) for what they really are: a crude form of insurance. Operators collect a large and somewhat arbitrary upfront payment from the resident, then must either return the full deposit amount after move-out (oftentimes including accrued interest) or a reduced deposit amount when things go wrong, depending on any outstanding rent or damage against the leased unit. But when they go wrong, they frequently leave the operator with expenses greater than the deposit, which is why properties using deposits still have bad debt.

The deposit is at the same time large enough to be prohibitively expensive for many renters and still insufficient to cover the losses against which it is meant to protect! And even if a bond is raised higher than the deposit amount, it increases the resident’s cost and offsets the affordability intended.

Here is another way to think about it: when you need to insure against a given outcome, you should do so with an insurance product. We all purchase many types of insurance, and they are usually delivered by companies that specialize in quantifying risk, predicting appropriate levels of coverage and making sure that coverage is accessible through competitive premiums. That is how insurance is supposed to work, and that is how operators should handle the problem they are currently using security deposits and surety bonds to address.

The best way to reduce the $80k in bad debt in our example above is to insure as many leases as possible at the time of leasing the apartment. Instead of asking prospects to scrape together a month’s rent upfront to secure the apartment, or selling surety bonds to each prospective resident, the property can instead insure the lease, which greatly increases coverage, which in turn lowers bad debt.

The property can recoup the insurance cost by offering a deposit waiver product for which the resident pays a modest monthly fee. This arrangement achieves the powerful win-win of affordability for the resident and greatly improved coverage for the owner. And when the vast majority of a community’s leases are insured in this way, that bad debt opportunity is converted into dollars that fall straight to the operator’s bottom line.

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How to Avoid Security Deposit Disputes — Don’t Ignore the Move-Out Experience

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When former apartment residents look back on their living experiences and assess their satisfaction, their lasting sentiments rest heavily on the final interactions they have with their apartment communities. So, why are so many renter relationships tainted after move-out?

Security Deposit Disputes Create Negative Move-Out Experiences Which Damage Your Online Reputation

Residents’ final impressions are often based on their move-out bills.

Renters who expect their entire security deposit to be refunded, or who incur unanticipated charges upon move-out, are left with a bitter taste in their mouth no matter how legitimate the charges might be. Unfortunately for apartment managers, parting on poor terms often leads to negative reviews from former residents. Even the happiest current renter can become a one-star reviewer after they receive the final billing statement.

In today’s marketplace, online reviews and ratings are an essential component of public relations for apartment managers, and move-out reviews from disgruntled former residents can severely damage a brand’s online reputation. Considering 85% of renters have indicated that online reviews influence their leasing decisions, the impact of negative feedback focused on the move-out experience and disputed charges may be greater than most properties expect.

An Innovative Solution to Prevent Security Deposit Disputes, Boost Renter Satisfaction, & Protect Brand Reputation

To help ensure that happy residents remain satisfied during the move-out process, many operators are removing costly security deposits and surety bonds altogether. After all the hard work that onsite teams put in to meet residents’ needs, those efforts shouldn’t be erased by billing conflicts on the back end. Property managers deserve positive feedback from the residents whose living experiences they cultivated, and renters deserve the opportunity to look back fondly at their leasing experience.

Quite simply, security deposits create an adversarial relationship between managers and residents that culminates at move-out. Residents routinely expect to have their deposits refunded in full at move-out, and they often count on those refund dollars to make the deposit at their next apartment. Management teams rely on those same deposits to cover cleaning costs and damages, and have little other recourse to recoup those costs.

Because a full refund is not always a reality, security deposits and deposit alternatives set managers up for failure from the moment they are collected. When renters are faced with receiving deposit deductions or repaying a bonding company, they take to Yelp, Google, Facebook, ApartmentRatings.com, ILSs, and other sites to vent their grievances.

Thus, in order to avoid move-out disputes and damaged relationships caused by deposits and surety bonds, operators should implement true deposit replacement technology.

Using Deposit Replacements to Eliminate Move-Out Charges

Many operators are turning to an integrated insurtech solution known as Zero Deposit lease insurance that removes security deposits from operating infrastructure. Unlike surety bonds, which merely present deposit alternatives, lease insurance replaces deposits with insurance technology and provides apartment operators enhanced protection on every single lease.

“The multifamily industry is changing,” explains Marcie Williams, president at RKW Residential. “Replacing security deposits with lease insurance enables us to meet the affordability needs of our residents, simplify the leasing process, and protect our assets in an uncertain economy.”

Deposit replacement technology removes a major hurdle in the application process, as well as the inherent conflict at the conclusion of the lease. In addition, lease insurance deploys seamlessly at check-out and provides operators with far more coverage against damage or bad debt than traditional deposits and bonds.

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Improve the Move-Out Experience With Zero Deposit

By offering a Zero Deposit move-in, operators avoid administrative and financial hassles related to deposit deductions and move-out charges. In turn, renters are more likely to write positive reviews touting the simplicity and affordability of both the move-in and move-out experience.

Happy residents can become happy reviewers. More importantly, when residents don’t have complaints about move-out fees, damage charges, or cleaning expenses, it means they also don’t have a reason to post negative move-out reviews that can drive down property ratings. Instead, operators can benefit from reviews that positively reflect their apartment communities.

Deposit replacement solutions like lease insurance facilitate a seamless start-to-finish renter experience, which improves resident satisfaction and brand reputation. When prospective residents do their homework on a community, that bolstered brand reputation sets the property apart and ultimately results in more lead-to-lease conversions and increased revenue for your organization.

Instead of continuing to fight the old security deposit battle, operators should look for solutions that empower them to improve renter sentiment at their communities.

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Texas Security Deposit Law: Why the New Deposit Bill Is a Win for Multifamily

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With legislation around the eviction moratorium, rent relief programs, and security deposits constantly evolving, Texas property owners and operators need to stay up-to-date on the latest rental housing laws. What are the biggest challenges facing both operators and their residents, and what do multifamily experts in the region have to say? What does the newest security deposit bill passed in May 2021 mean for the industry?

States continue to roll out rental assistance programs, and a wave of security deposit legislation is sweeping across the nation, so we invited esteemed industry experts from AMLI Residential and Madera Residential to discuss key concerns, including:

  • How to navigate federal and state eviction moratoriums
  • Tips for accessing rent assistance
  • Analysis of state security deposit bill
  • Options to replace security deposits
  • What this legislation means for multifamily operators and what’s required to be compliant

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Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this article without seeking legal or other professional advice. The contents of this article contain general information and may not reflect current legal developments or address your situation. We disclaim all liability for actions you take or fail to take based on any content on this site. This article contains links to other websites. We are not responsible for the privacy practices or the content of such websites, and we do not endorse such sites.

Texas Eviction Moratoriums & Rent Assistance Program

The CDC eviction moratorium is set to expire June 30, 2021. As of March 31, the Texas Supreme Court’s 34th Emergency Order, which applied the provisions of the CDC moratorium to Texas courts, has expired. This means eviction proceedings can take place, barring where local government protections apply.

To help make sense of the various regulations, we hosted an educational presentation and expert panel to help inform apartment operators in the state of Texas — below is a recap of the webinar.

Federal Rent Assistance

The CAA and ARPA bring a combined total of $45 billion in federal funding to cover rental arrears. Based on population, the program allocates $1.3 billion in funding for Texas.

Note: For the full letter of the law, access CAA here and ARPA here.

CAA & ARPA Funding Eligibility Requirements

The eligibility criteria for both the CAA and ARPA funding programs require that:

  1. Combined household total gross income cannot exceed 80% the area median income for the location where the property is located.
  2. Household must demonstrate a risk of homelessness or instability.
  3. Household has experienced loss of income due to Covid-19.

Texas Tent Relief Program

The 2021 Texas Rent Relief Program (TRRP) — which is intended to distribute the $1.3 billion in federal funding available in Texas — is currently available and being distributed. Those interested in applying should visit texasrentrelief.com.

Applicants are eligible for up to 15 months of assistance, covering past due rent from the previous 12 months and future rental assistance for three months. While there is no maximum grant allowance per household, rent may not exceed $4,600 per month. Units that exceed the limit are not eligible for assistance from the Texas Rent Relief Program.

Operators can begin the process of applying for funds themselves, but renter participation is required in order for an application to be accepted. For a list of program FAQs, visit here.

Texas Eviction Diversion Program

The Texas Eviction Diversion Program (TEDP) is a voluntary program that allows eligible landlords and tenants to mutually agree on a resolution to an eviction case before displacing a resident. The program was created to prevent evictions that are already on court dockets, as a last resort to keep renters in apartments.

TEDP is a program specific to Texas, and is designed to encourage mediation to resolve past-due rent issues between operators and their residents, rather than evict or displace renters. Applicants are given funding priority over those utilizing the Texas Rent Relief Program, making this an attractive option for operators. For a full list of program requirements, visit here.

SB 1783: The New Texas Security Deposit Law

In May 2021, new security deposit legislation was passed in Texas, marking a big win for both operators and renters in the state. Effective September 1, 2021, SB 1783 codifies the current practice of utilizing a small monthly deposit waiver fee instead of a large upfront deposit upon move-in. The bill outlines the following:

  • If the property requires a security deposit, operators can instead choose to offer the renter an option to pay a fee in lieu of a security deposit, however there is no mandate that operators offer such an option
  • The fee must be memorialized in an agreement and signed by both the property and renter (this requirement could be covered through a lease addendum)
  • The fee can either be recurring monthly or payable on any schedule so long as it’s agreed to between the renter and property
  • The statute also specifically states that an operator may use the fee to purchase insurance covering renter defaults like unpaid rent and physical damage to a unit under the lease (otherwise known as lease insurance)

SB 1783 specifically says that the fee collected under this section is not a security deposit, meaning the fee does not need to comply with the security deposit statute.

What the New Texas Deposit Law Means for Multifamily

A Move Away From Deposits

Considering today’s economic climate, it’s increasingly important for operators to meet the needs of renters who are dealing with financial strain. Most Texas operators understand that renters prefer not to pay large upfront deposits. In the great state of Texas, we’ve seen more and more operators try to address affordability by charging, sometimes, only $100 for deposits.

What’s the issue with this approach? It doesn’t mitigate risk. So, what happens when these security deposits aren’t enough?

Lately, we’ve seen a trend to move away from deposits toward risk fees. But these fees do not always provide sufficient coverage for operators in relation to the risk they’re taking on. Operators need better backend protection, which is why across the country, we’re seeing rapid movement toward deposit replacement solutions, like Zero Deposit lease insurance, to protect against rent loss.

In fact, since the start of 2020, there’s been a 58% increase in Zero Deposit properties across Texas.

How SB 1783 Is Different From Renter’s Choice Laws

Legislation like SB 1783 takes Renter’s Choice laws — which require deposit alternatives like surety bonds be offered — a step further in eliminating the issues associated with deposits and their alternatives. In other words, deposit replacement laws provide apartment operators true deposit replacement solutions while leaving it up to the operator to determine the best deposit replacement option.

Ultimately, deposit replacement laws like SB 1783 enable operators a secure way to choose a deposit solution like lease insurance while also creating more affordable move-ins for renters.

SB 1783 marks an important victory for the multifamily industry. LeaseLock supports legislation that gives operators a true — and secure — choice in selecting deposit solutions that they determine is best for their properties and which, at the same time, can make renting more affordable for their residents.

Top Operator Concerns With Security Deposits & Deposit Alternatives

More operators are seeking out deposit solutions more than ever before. Some key concerns operators are looking to tackle include:

  • Administrative burdens for both onsite staff and accounting teams
  • Increased risk exposure if the renter defaults prior to having paid the full deposit amount
  • Complexities that slow the leasing process due to administrative burdens and compliance issues
  • Compliance issues for owners with properties across several states and cities — each with its own legal requirements.

The Security Deposit Solutions Market

Operators should understand the key differentiators between the deposit solutions available: deposit replacements and deposit alternatives.

Security Deposit Alternatives

Deposit alternatives (i.e., surety bonds) create operational complexity as they require onsite training, third-party applications, and background checks and/or FICO scores. Because they’re out-of-workflow, deposit alternatives often lead to low adoption.

Security Deposit Replacements

Deposit replacement solutions (i.e., lease insurance) totally eliminate deposits. Lease insurance eases administrative burdens, streamlines back-office workflows, and provides significantly more protection for rent and damages compared to traditional deposits and deposit alternatives.

Texas Rental Housing Laws Expert Panel Discussion

LeaseLock hosted an educational webinar and expert panel session on the many legislative challenges facing owners and operators in Texas. Moderated by our very own Ed Wolff – Chief Revenue Officer, the panel featured industry thought leaders, Jeffery Lowry – Chief Operating Officer at Madera Residential and Traci Hall – President – West Region at AMLI Residential.

Texas-Rental-Housing-Laws-Webinar-Panel-Experts

Below is a preview of the panel questions covered:

  1. As the pandemic ends and eviction moratoriums are lifted, how can operators properly prepare for eviction filings?
  2. Renters and operators are feeling overwhelmed and confused about applying for rent relief — what can operators do to help direct residents to rental assistance?
  3. How should operators think about risk mitigation in today’s economic climate?
  4. Renter fraud has become a more pressing issue across all asset classes — how are operators addressing this?
  5. What types of tools should operators have in their tech stack that integrate into the workflow to maximize efficiency and reduce disruptions?

To access a recording of the of the rental housing laws presentation and panel, fill out the form below:

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Illinois Rental Laws: The Guide to Rent Assistance & Deposit Legislation

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Illinois property owners and operators are constantly navigating ever-changing rental housing laws. With new legislation around rental assistance and security deposits, what do these policies mean for multifamily in the Chicago region and Illinois as a whole?

In light of new rental assistance programs, as well as a wave of security deposit legislation sweeping across the nation, we pulled together an expert panel to discuss key concerns and challenges facing Illinois owners and operators, including:

  • How to navigate federal and state rent assistance
  • State and local security deposit laws
  • The right options to replace security deposits for apartment residents
  • What this legislation means for multifamily operators and what’s required to be compliant

Note: Download the full webinar recording by filling out the form at the end of this post.

security-deposit-replacement-legislation-california-rental-laws

Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this article without seeking legal or other professional advice. The contents of this article contain general information and may not reflect current legal developments or address your situation. We disclaim all liability for actions you take or fail to take based on any content on this site. This article contains links to other websites. We are not responsible for the privacy practices or the content of such websites, and we do not endorse such sites.

Illinois Rental Assistance Programs & Security Deposit Laws

From complicated rental assistance programs to tightening security deposit laws, keeping up with ever-changing legal landscape is no easy task. To help, we hosted an educational presentation and panel to help inform apartment operators in the state of Illinois — below is a recap of the webinar.

The Letter of the Law: Federal Rent Assistance

The federal funding sources include the Consolidated Appropriations Act (CAA) and the American Rescue Plan Act (ARPA). The CAA provides about $25 billion while the ARPA brings roughly $20 billion for a combined total of $45 billion in federal funding to cover rental arrears. Funding is provided to states based on population, meaning Illinois will eventually receive a combined $900 million.

For the full letter of the law, access CAA here and ARPA here.

CAA & ARPA Funding Eligibility Requirements

The eligibility criteria for both the CAA and ARPA funding programs require that:

  1. Combined household income must not exceed 80% the area median income for the location where the property is located.
  2. Household must demonstrate a risk of homelessness or instability.
  3. Household has experienced loss of income due to Covid-19

Illinois Rental Payment Program

So, what are the next steps for operators and residents who need access to rent assistance? The 2021 Illinois Rental Payment Program (which is intended to distribute the ~$900 million in federal funding allocated for Illinois) is not yet available as the state is not currently accepting applications. Those interested in applying should check back here in May for updates.

In the meantime, we know that applicants are eligible for up to 15 months of assistance, covering past due rent from the previous 12 months and future rental assistance for the next three months, with a maximum grant amount of $25,000 per household.

Operators can work together with renters to start the application process, but renter participation is required in order to qualify.

Illinois Security Deposit Law

The Illinois Security Deposit Return Act does not put a limit on the maximum security deposit amount that operators can collect. When making deductions, operators have 30 days from the date of move-out to return it and written notice is required. When returning the full amount, operators have 45 days from the date of move-out to return the funds and no written notice is required.

At the local level, both Cook County and the city of Chicago have restrictive laws on how security deposits can be collected, managed, as well and how and when they must be returned.

Cook County Deposit Law
The Cook County RTLO (Residential Tenant and Landlord Ordinance) caps security deposits at 1.5 month’s rent and reduces the time for returning a deposit from 21 days to 30 days.It also requires operators to give renters the option to pay any portion of the security deposit in excess of one month’s rent, in no more than six equal installments no later than six months after the effective date of the lease.

Chicago Deposit Law
The Chicago RLTO (Residential Landlord & Tenant Ordinance) requires that landlords:

  1. Provide a written receipt for security deposit funds
  2. Disclose where security deposit funds are held
  3. Avoid commingling of deposit funds
  4. Pay annual interest on deposits
  5. Provide appropriate evidence of repairs
  6. Return deposit funds in a timely manner

The Rising Tide of Security Deposit Legislation

Deposit laws started cropping up decades ago, primarily in the form of deposit restrictions, as we see is the case in Illinois. Deposit restriction laws regulate the maximum deposit amount and the number of days to return a deposit. But in the last year, lawmakers have begun to shift away from deposits entirely.

security-deposit-replacement-legislation

More than one-third of US states have passed, proposed, or pledged support for deposit replacement laws including California, Delaware, Florida, Maryland, Michigan, North Carolina, Ohio, Pennsylvania, and Virginia. This movement is also happening at the local level, including in Atlanta, Baltimore, Cincinnati, Columbus, Philadelphia, New York City, and Santa Cruz.

Deposit replacement laws provide apartment operators true deposit replacement solutions, rather than imposing more restrictive deposit regulations.

To view a full list of state and city deposit laws, click here.

security-deposit-replacement-legislation

The Drawbacks of Deposit Laws

The ever-changing legal landscape of security deposits is just one of the many challenges that apartment operators face today. In light of this, more operators are seeking deposit solutions in order to address concerns like leasing delays, administrative burdens, increased risk exposure, and compliance issues.

The Security Deposit Solutions Landscape

It’s important to understand deposit solutions are not all alike, and operators should be aware of key differences between deposit replacements and deposit alternatives.

Security Deposit Alternatives

Deposit alternatives (i.e., surety bonds) can address the legal requirements of new deposit laws, but they also create operational complexity. Alternatives usually require onsite training, third-party applications, and background checks and/or FICO scores. They’re also out-of-workflow which leads to low adoption. This means they’re still subject to the legal restrictions, which defeats the reason why operators are moving away from deposits.

Security Deposit Replacements

Deposit replacements (i.e., lease insurance) eliminate deposits completely and replace them with lease insurance. Through deep property management system integrations, lease insurance eases administrative burdens, streamlines back-office workflows, and provides more protection for rent and damages. No deposits means operators are not subject to the legal requirements.

Illinois Rental Housing Laws Expert Panel Discussion

LeaseLock recently hosted an educational webinar and expert panel session on the various legislative challenges facing owners and operators in the state of Illinois. Moderated by our very own Ed Wolff – Chief Revenue Officer, the panel of multifamily experts included Tom Benedetto – Director of Government Affairs at Chicagoland Apartment Association, Kortney Balas – VP of Information Management at JVM Realty, and Delight Merrill – Director of Property Management at Redwood Capital Group.

illinois-rental-laws-multifamily-panel

Here’s a preview of the panel questions covered:

  1. How can the apartment industry support innovation and legislative changes that streamline requirements and lower costs for both owners and renters?
  2. What are owner and operators’ most pressing concerns around the tightening of rental housing restrictions like deposit laws?’
  3. What tools should property owners and operators have in their tech stack that integrate into the workflow, especially to maximize efficiency and reduce disruptions?
  4. The pandemic has brought about economic uncertainty — let’s discuss what operators should do to properly manage risk and protect NOI.
  5. What’s the biggest challenge as an owner/operator today in regards to ensuring your residents get rental assistance?

Access a recording of the of the panel session — fill out the form below:

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California Rental Laws: What to Know About SB 91, Rent Control, Deposit Laws & More

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California lawmakers extended a statewide eviction moratorium through June 2021 and passed an emergency measure to deliver $2.6 billion in rent relief. Local jurisdictions in San Diego and Los Angeles counties have also passed their own eviction moratoriums.

With strict rent control in cities such as Santa Monica, and tightening security deposit legislation across the state, what do these California rental laws mean for property owners and property management companies in the region?

California’s Eviction Moratorium, Rent Relief, Rent Control, Deposit Laws & More

Having trouble keeping up with California’s eviction moratorium, rental assistance, rent control, and security deposit laws? We recently hosted a webinar to educate apartment operators based in California, and below is a recap of what we covered.

Disclaimer: The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter. You should not act or refrain from acting on the basis of any content included in this article without seeking legal or other professional advice. The contents of this article contain general information and may not reflect current legal developments or address your situation. We disclaim all liability for actions you take or fail to take based on any content on this site. This article contains links to other websites. We are not responsible for the privacy practices or the content of such web sites, and we do not endorse such sites.

The Letter of the Law: SB 91 Tenant Relief Act

SB 91 was passed on Jan 31, 2021, and extends the protections under AB 3088 (also known as the Tenant Relief Act). Originally set to expire on Jan 31, 2021, the eviction moratorium now extends through June 30, 2021.

The Southern California Rental Housing Association (SCRHA) has been proactive in educating housing providers on how to navigate the Tenant Relief Act and provides their perspective on SB 91:

“Housing providers should pay careful attention to all the details of the eviction protection law/SB 91. There are many moving parts and potential pitfalls with mandatory notifications, specific language in pay or quit notices, and the immediate application of just cause protections for most California renters. With anti-displacement a top priority for elected leaders, ending a tenancy has become more complicated. Housing providers should rely on professional associations to help guide them and consult with legal counsel prior to taking decisive action.”

Note: Access SB 91 in its entirety here.

Eviction Moratorium Extension

What does SB 91 mean for rental housing providers? In effect, the moratorium extension prevents properties from evicting renters for nonpayment of rent through June 30, 2021.

However, it is subject to a few exceptions, including any renter default that occurred prior to March 1, 2020.

Under SB 91, properties can’t evict a renter due to nonpayment of rent if:

  1. The Renter provides a declaration of COVID-19 financial impact; and
  2. The Renter pays at least 25% of rent by June 30th, 2021 (for rent amounts due between September 2020 and June 2021)

$1.4 Billion Rental Assistance Program

SB 91 also allocated $1.4 billion in emergency rental assistance, which provides up to 80% of rental assistance to eligible households. It’s important to note that:

  • Operators must waive the full balance due
  • Operators will have to forfeit the 20% of rent

Eligible households must qualify — if they fail to meet eligibility requirements, then the renter must pay 25% of rent by June 30, 2021 in order to avoid eviction. Either the property or renter may apply.

Household Eligibility Requirements

To receive up to 80% of assistance for rent amounts due, a household must qualify, meaning they must meet all 3 of the following criteria:

  1. At least one person in the household must qualify for unemployment or must experience financial hardship, reduced income, or increased costs;
  2. At least one person in the household must show risk of homelessness or instability; This would include past due utility bill, rent demand notice, etc.; and
  3. Household income must be at or below 80% of area median household income (AMI) in the area the property is located.

Operator Participation Requirements

What are operators required to do in order to participate in the California rental assistance program?

1. Properties have a duty to participate, meaning operators must:

  • Make a good faith effort to investigate
  • Provide assistance to renters who may qualify
  • Cooperate with renter’s efforts to obtain rental assistance under SB 91

2. Properties must provide documentation showing compliance with SB 91 when making a debt collection complaint.

3. If a renter owes COVID-related rent debt as of February 1, 2021, an operator must provide a Notice of Tenant Rights no later than February 28, 2021, even if the operator has no intention of pursuing an eviction case at this time.

How Does SB 91 Impact Statewide Rent Control?

SB 91 extends AB 1482 (statewide rent control) by expanding the just-cause eviction requirements and temporarily extending to all types of rental properties. All renters are also covered from their first day of tenancy. Renters who don’t comply with tenant requirements under SB 91 can still be evicted, but operators must adhere to any local government ordinance in place.

The California Tenant Protection Act (AB 1482) went into effect on Jan 1, 2020, putting an annual rent increase cap at 5% plus inflation per year or 10% without inflation, whichever is less — making it one of the strongest rent control statutes in the US.

More recently, California Proposition 21 was defeated during the 2020 November election, thus prohibiting rent control on housing that was first occupied after Feb 1, 1995, and housing units with distinct titles.

In Los Angeles County, the Rent Stabilization Ordinance went into effect on April 1, 2020, which limits rent increases above the allowable limit (3%) within a 12 month period, and provides just cause eviction protections for most residential rental units.

California is one of 5 states that has cities with some form of residential rent control law. Many Southern California communities already have rent control laws in place, including Santa Monica, West Hollywood, Beverly Hills, Glendale, Culver City, Inglewood, Los Angeles, and unincorporated neighborhoods of LA County.

Rent control is top of mind in California, and there are also new laws cropping up that further restrict use of security deposits — SB 91 is an example.

Deposit Laws Are Accelerating Nationwide

Deposit restriction laws regulate the maximum deposit amount and the number of days to return a deposit — something the multifamily industry is no stranger to. In the last year, the industry has begun to shift away from deposits.

security-deposit-replacement-legislation

About one-third of US states have passed, proposed, or pledged support for deposit replacement laws including California, Delaware, Florida, Michigan, North Carolina, Ohio, Pennsylvania, and Virginia. Cities including Atlanta, Cincinnati, Columbus, Philadelphia, New York City, and Santa Cruz have also taken action.

Deposit replacement laws take deposit legislation a bit farther by giving apartment operators true deposit replacement solutions, as opposed to implementing more restrictive deposit regulations.

View a full list of state and city deposit restrictions and deposit replacement laws here.

security-deposit-replacement-legislation

3 Challenges Created by Deposit Laws

Multifamily operators and owners have dealt with an array of different challenges over the years, and changing deposit legislation is only one of them. But in the last year, a growing number of operators are seeking deposit solutions in light of these deposit laws. Some of the key concerns operators are looking to address include:

  1. Leasing Delays – Operators must inform residents of the deposit alternatives options, and renters can shop these options before getting the property’s approval. This can slow down leasing activity significantly.
  2. More Work for Onsite Teams – Properties must review and approve multiple insurance policies while still managing security deposit accounting. Onsite teams will also have to track deposit installment payments for renters who choose to go that route.
  3. Increased Risk – Deposit installment plans increase operators’ exposure to financial risk if the renter defaults prior to having paid the full deposit amount.

Operators Seek Deposit Solutions

As the industry shifts toward total deposit replacement, it’s important that the market understand deposit solutions come in the form of deposit replacements and deposit alternatives.

Security Deposit Alternatives

Deposit alternatives — like surety bonds — can address the legal requirements of new deposit laws, but they also create operational complexity. Deposit alternatives typically require onsite training, third-party applications, background checks and/or FICO scores, and out-of-workflow management. In other words, traditional security deposits are still in place, and therefore still subject to the legal restrictions.

Security Deposit Replacements

Deposit replacements — like lease insurance — replace deposits completely. Lease insurance leverages deep property management system integrations which streamlines back-office workflows and provides increased protection for rent and damages. Operators who replace deposits entirely are therefore not subject to the legal requirement.

What Top Operators Are Saying About Deposit Laws

Several leading operators recognize the need to move away from surety bonds, including Kelli Jo Norris – President of Goodman Real Estate, Michael Roos – Managing Director of Asset Management at ColRich, and Kevin Huss – Vice President of Revenue Management at Harbor Group.

california-rental-laws-apartment-operator-testimonials

Navigating the Deposit Legislation Landscape

When operators rely on security deposits and deposit alternatives, they’re subject to the inherent variability of deposit legislation. But when they implement lease insurance software that automatically ejects deposits from enterprise operating infrastructure, they can avoid the legal requirements of the various deposit laws, both passed and pending.

California Rental Laws Webinar for Apartment Operators

LeaseLock recently held an educational webinar on California rental laws, led by our very own Reichen Kuhl – President & Chief of Legal, Ed Wolff – Chief Revenue Officer, and Carl Stockholm – VP of Enterprise Sales for the West Region.

california-rental-laws-webinar-speakers

Fill out the form below to get view a recording of the webinar:

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What Is Lease Insurance, And Why Do Apartment Operators Need It?

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Lease insurance—what exactly is it?

In the multifamily industry, apartment lease insurance is a completely new insurtech product designed to totally eliminate costly security deposits, drawn-out surety bond applications, and confusing guarantee programs, all of which are burdensome for both residents and operators. LeaseLock deploys lease insurance through its Zero Deposit Platform and unlike common “deposit alternatives” in the rental housing market, lease insurance is designed to replace security deposits with seamless insurance technology and provide apartment operators enhanced protection on every single lease.

How Does Apartment Lease Insurance Work?

Instead of paying a costly upfront deposit upon move-in, renters pay a small monthly deposit waiver fee along with their rent. In turn, the property is protected against missed rent and damages with customized coverage.

One of the defining features of lease insurance is that it’s the only product designed to protect the property management company and asset owner — meaning properties gain remarkably more coverage than they would with a traditional deposit, which significantly reduces bad debt.

Top Benefits of Lease Insurance

Lease insurance offers several key benefits, including:

  1. Superior coverage
  2. Renter affordability
  3. Native lease integration
  4. Improved online reputation

1. Stronger Protection Against Unexpected Events and Market Disruptions

The COVID-19 pandemic and subsequent recession have led to industry-wide uncertainty. Luckily, lease insurance has been the answer to many operators’ financial concerns. Built on a sustainable loss ratio model, lease insurance eliminates operational risk and provides customized insurance coverage against rent loss and damage on every lease with the preferred plan.

what-is-apartment-lease-insurance-RKW-marcie-williams-testimonialCompared to security deposits and deposit alternatives like surety bonds, lease insurance offers 3x more protection on average against rent loss and damages. This shields apartment communities from economic uncertainty. As President at RKW Residential Marcie Williams points out, “Replacing security deposits with lease insurance enables us to protect our assets in an uncertain economy.”

2. Affordable Move-Ins Drive More Traffic and Higher Conversion Rates

Renter affordability has been front and center, especially since the pandemic. As more renters search for affordable living options, security deposits are no longer a viable option for many. Lease insurance, however, eliminates security deposits entirely, meaning properties can attract more prospective renters, accelerate move-ins, and increase conversion rates.

what-is-apartment-lease-insurance-ROCO-damon-evert-testimonial

For example, CFO and COO at ROCO Real Estate Damon Evert explained the benefits of replacing deposits with lease insurance after the company achieved an increase of 10 to 20 leads per property per week: “It’s something that should give us a strong advantage when it comes to competing for prospects.”

3. Deep Technology Integration Delivers Results Through Automation

The pandemic accelerated technological change, and with that, automation and integration have emerged as top priorities for operators as they hunt for future-proof technology solutions. Leasing operations have shifted online, and in response, operators are looking for ways to streamline their processes, not add additional steps (i.e., surety bonds create administrative burdens for on-site teams).

From move-in to move-out, Zero Deposit lease insurance software is natively embedded in online lease checkout, lease execution, monthly billing and accounting, receivables and automated claims, and property performance metrics. This enables operators to eliminate deposits portfolio-wide and drive net operating income—without any additional work for onsite teams.

what-is-apartment-lease-insurance-TRG-sheri-thomas-testimonialManaging director of asset management at Trinsic Sheri Thomas notes, “We pride ourselves on being an innovative apartment company that provides the highest level of convenience for our residents. Replacing the security deposit cost barrier with lease insurance delivers a frictionless and automated leasing process.”

4. More Positive Community Reviews

Another advantage of apartment lease insurance has to do with renter experience and online reputation. COO at Bell Partners Cindy Clare explains, “Considering security deposits can also create upfront affordability issues and disputes at move-out, the benefits just don’t outweigh the challenges.”

what-is-apartment-lease-insurance-bell-partners-cindy-clare-testimonialWhen renters don’t have to worry about security deposit deductions or repaying bonding companies (who may run collections on unpaid expenses), they’re more likely to write positive reviews. These reviews often emphasize the affordability of a zero-deposit move-in, as well as the ease of the move-out experience.

All in all, lease insurance helps improve the resident experience which can translate into a more favorable online reputation.

Lease Insurance Vs. Security Deposit Alternatives

Lease insurance is a security deposit replacement that completely eliminates deposits. On the other hand, security deposit alternatives are offered in addition to traditional deposits. Deposit alternatives include surety bonds, rent guarantees, deposit installment solutions, and credit authorization services.

apartment-lease-insurance-security-deposit-alternatives-vs-deposit-replacements-comparison-chart

Whereas lease insurance requires no applications or approvals, deposit alternatives such as surety bonds require extensive onsite training on “selling” the solution to renters, which creates friction in the leasing process — and results in low adoption rates. Lease insurance, however, offers native lease checkout integration which creates “zero touch” deployment. Because of this, lease insurance can drive over 90% adoption rates and functions as a true deposit replacement, eliminating the burdens associated with deposit administration and liability.

In addition to workflow differences, lease insurance and deposit alternatives differ in the protection they offer. Lease insurance provides enhanced, customized property protection while leading alternatives are generally designed to cover up to the cost of the deposit. This means operators are able to reduce bad debt significantly at each property with lease insurance.

Why Multifamily Is Replacing Security Deposits With Lease Insurance

Multifamily may be reluctant to embrace change, but the pandemic has shuffled the industry along in adopting new technologies, processes, and priorities to meet the demands of modern renters. Today’s renter experience should be easy, fast, and affordable.

security-deposit-alternatives-replacements-legislation-map

On top of this, security deposit legislation has played a pivotal role in accelerating an industry movement away from security deposits. States have adopted deposit laws that require property managers to offer deposit alternatives in addition to traditional security deposits. In Pennsylvania, a proposed bill goes one step further in providing operators with complete deposit replacement solutions rather than just tightening deposit regulations.

what-is-apartment-lease-insurance-Avenue5-mark-stringer-testimonialOperators are also realizing that deposit alternatives like surety bonds don’t provide sufficient coverage. While they offer renter affordability, surety bonds may not provide reliable loss protection amid growing economic uncertainty. As Executive Vice President at Avenue5 Mark Stringer says, “Deposits are too expensive and surety bonds provide inadequate coverage, putting property owners at financial risk.”

The multifamily industry needs a sustainable software platform that future-proofs their communities by eliminating deposits for good. Deposit replacement solutions like the Zero Deposit Platform should be automated and deeply integrated within leasing checkout and property management systems, create an affordable leasing experience for renters, and generate NOI lift for the property. Lease insurance was designed from the ground up to accomplish this.

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As Vacancies Rise, Class A Properties Seek a Competitive Edge

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The pandemic has impacted multifamily in a range of ways, and all operators face a unique set of challenges. While the economic effects of the pandemic hit Class C residents notoriously hard, all asset classes have been affected by different market forces.

For example, Class A apartments have been especially hard-hit by renter movement away from dense urban centers, toward more affordable rental options. How are owners and operators adapting to rising vacancies and slumping rents at these Class A properties?

Class A Vacancy Grows as Renters Flee Urban Areas

According to a study by Marcus & Millichap, COVID has increased vacancy levels in Class A properties specifically, as residents flee higher-priced cities for more affordable options.

Vacancy rose to 5.7% amid Class A properties between the first and second quarter of 2020, propelled by renters seeking lower-cost housing. This vacancy comes after a swell of Class A units were recently added to the market in early 2020, which lead to even greater unit availability.

class-a-apartment-vacancies-q2

The average Class A rent also fell 1.5% in the second quarter, an even steeper drop than was seen across the average rental market. Dense, gentrified and high-priced areas like San Francisco, New York City, Chicago, Austin, Orlando, and Atlanta suffered the greatest cuts to rent growth.

How Operators are Driving New Leases Despite Class A Apartment Vacancies

In light of these challenges, operators are implementing creative solutions to get more renters in the door. According to a recently published Zillow Report, concessions have nearly doubled to combat a softening rental market.

The most popular concession is free weeks of rent, followed by reducing or eliminating security deposits. Other less popular options include offering gift cards, free parking, and waiving fees.

Balancing Concessions and Risk at Class A Properties

No question, concessions are a popular way to drive leads. Cutting one month’s rent or offering a $99 deposit feels like an enticing way to attract renters in a down economy — so operators are willing to absorb these costly concessions in the hopes they will be worth the boost in occupancy.

However, several owners and operators at Class A properties are also finding creative ways to offer an affordable move-in without exposing themselves to bad debt, or hurting their bottom line.

Prominent Greystar-managed owners eliminated costly security deposits for residents this year — without absorbing additional financial risk— by deploying LeaseLock’s Zero Deposit software platform.

After marketing their communities as Zero Deposit, these Class A properties saw a 5.3% increase in closing ratio, while increasing their protection against missed rent and damage with over $5,000 of coverage on 92% of new leases.

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The Top 4 Benefits of Lease Insurance for Rental Housing

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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.

Why Apartment Operators Should Replace Security Deposits and Surety Bonds with Rental Lease Insurance

Below are the top four benefits of using lease insurance for rental housing:

  1. Better Protection Against Unexpected Events and Market Disruptions

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.

  1. More Traffic and Higher Conversion Rates

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.

  1. Reduced Administrative Headaches for Onsite Staff

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.

  1. Improved Online Reputation

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.

Protect Your Apartment Communities With Lease Insurance

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.

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