Has Any One Started Using Surety Bonds Vs Sec Deposit/Move in fee

Question

Morning All,

Our property management company has been looking into collecting Surety Bonds vs Sec Deposits or Non Refundable Move in Fees(Chicago) and wondering if anyone can share their experience.  For our operation in Chicago we only collect a $250-$500 non refundable fee and we are looking for ways to better protect our landlords while staying competitive and out front of the competing units for rent.  In our suburb operation(non Chicago Address) we typically collect one months security deposit which if we can advertise move in costs are less we think we can get units leased quicker.

Our concerns are back end administration for filing claims and the willingness of surety companies to pay out on a claim?  Are there any geographic areas a surety company wont cover?  Any other pitfalls we are missing?

Any advice or experience is greatly appreciated.

Keywords: New York, Texas, Florida, Dupage, Kane, Will, Portland, Seattle

Nathan Gesner · Answer

I know property managers that so something similar and have good success with it. They basically use it as another income stream. They start by categorizing the tenant into 3-4 different categories of risk.

Low risk: $250

Medium risk: $500

High risk: $750

Tenant pays this "bond" that is non-refundable. If the tenant moves out and leaves $2,000 in damages, the Property Manager eats the cost and goes after the tenant for the $2,000 owed.

It's a numbers game that works in their favor. I have 300 rentals and charge an average $500 non-refundable bond to all my renters. That's $150,000 I've collected and get to keep no matter what. In that same year, I would have spent less than $50,000 in cleaning and repairs so I get to put $100,000 in my pocket.

At the same time, I can tell my owners that cleaning/repairs will be covered up to a dollar amount that is higher than any security deposit. I can offer to cover up to $3,000 whereas the average security deposit is $1,000.

It also helps fill units faster because it's more affordable for tenants to move in. On the flip side, I don't want to make it easier for people to move in!

Jon A. · Answer

I'm interested in trying this out with Assurant being that they have a program called SureDeposit...

Has anyone here used this service?

Patrick Liska · Answer

@Mark Ainley, @Jay Hinrichs, i just got back to my computer and just found this article: https://blog.suretysolutions.com/suretynews/moving...

Jay in reading more up on this i have a tendency to agree with you, it seems bonding co.'s usually want a good credit score, it's like you as a landlord are looking for a good tenant, they want to make sure they get their money back from the tenant ( Principal). the only good thing is it does not go against you, just probably tougher to get the money as you say, it will work like an insurance co and you will not get your money quick, so is it better than a security deposit ?

Jay Hinrichs · Answer

Mark as one who routinely has to get surety bonds for cities and licensing here in Oregon.

I can tell you I highly doubt the rental class of anything below A class will qualify for a surety bond.

then just try to collect.. :) remember its insurance they don't pay easy..

I think that's why those insurance companies that were selling rental guarantee insurance come into the market and left about as quick as they came in.. too many claims.

Surety bond at least the ones I am use to getting.. require experience and balance sheet and high fico.  For the life of me I cannot see your average week to week tenant qualify for one.. unless there is some new product out there that I am unaware of.

Patrick Liska · Answer

@Mark Ainley, that is a very interesting concept, and i am going to follow this post, i have some student rentals in a market that has down turned a little, and i think that would give my PM a competitive edge in getting these rented. i am going to run that by them. so you would purchase the bond and any damage you would put a claim against while the bonding co. goes after the tenant ? there are a lot of different Bonds, i am thinking the one that may work is a contract bond, is that the type of surety bond you are thinking about ?