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

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:

Superior coverage
Renter affordability
Native lease integration
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.

Compared 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.

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.

Managing 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.”

When 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.

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.

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.

Operators 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.

October 20, 2020/0 Comments/by Paul Cook

As Vacancies Rise, Class A Properties Seek a Competitive Edge

Insurance, Leasing, Research

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.

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.

September 24, 2020/0 Comments/by Paul Cook

The Top 4 Benefits of Lease Insurance for Rental Housing

Insurance, Leasing

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:

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.

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.

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.

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.

April 1, 2020/0 Comments/by Paul Cook