I am interviewing several PM companys for my first rental, its long distance. Half of the PM companies do not collect a security deposit. This makes me nervous. Am I overreacting? What is the benefit to a landlord of waiving the deposit, as I dont see any?
Why would they ever do that? I'd avoid them because if the tenant damages something, you are going to be on the hook for repairs.
The purpose of a security deposit is to ensure the tenant complies with the lease. It mitigates your risk by offering you some protection against a tenant that fails to pay their last month rent or leaves the home dirty or damaged.
If the Property Manager doesn't collect a deposit, how are they mitigating that risk or ensuring compliance?
More property managers are using deposit alternatives. For example, a company called Rhino offers "insurance" instead of a traditional deposit. The tenant applies with Rhino and determines the cost based on credit score and other factors. Instead of paying $1,000 for a deposit, the tenant can pay $10 a month to Rhino. If the tenant moves out and leaves $1,000 in cleaning and repairs, Rhino reimburses the Landlord or Property Manager and then goes after the renter to collect.
These deposit alternatives make it cheaper/easier for tenants to move in while providing the same level of protection to you as an investor. More and more cities/states are limiting what an owner can charge for a deposit, so this is a necessary change. I predict these alternatives will become more common than the traditional deposit within the next ten years.
@Theresa Harris thanks so much. When I spoke to the first PM that said they waive the security deposit, I was ready to end the conversation. But, when a second PM company also said this, I was thinking, am I am missing something. Thanks for the validation
@Nathan G. Thanks so much!! I love this concept, feels fair to both the tennent and the landlord.
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