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

3 Reasons Why Deposits Need Replacement, Not Alternatives - Whitepaper

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


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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