Cincinnati landlords cant ask for security deposits anymore!
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
6yYour headline is false. Landlords can still have "security deposits" but they have to limit the amount or provide alternatives:
1. Traditional deposit but made in payments;
2. Deposit "insurance" where the Tenant pays a small, non-refundable premium each month; or
3. Reduced security deposit of no more than 50% of a month's rent.
I see the writing on the wall and am already heading this direction. Starting next month, I will be offering my tenants a deposit alternative. Instead of a $1,500 deposit up front, Tenant can opt to pay a monthly fee of $10 and Obligo will ensure protection of up to $1,500 for me as the Landlord. If the tenant causes $800 in damages, I file a simple, online claim with Obligo and they pay me the $800 with no questions asked, then they pull the $800 from the Tenant's bank account or credit card.
All my applicants are given a score and that score determines how big of a deposit they pay. If they are low-risk, they pay a 1x deposit while high-risk pays a 2x deposit. Paying $1,000 for first month's rent and $2,000 for a deposit is difficult for most anyone. If they could instead pay $1,000 for first month's rent and a $15 monthly fee, suddenly it's affordable for a lot more people. I can rent the property and still get the same level of security as a traditional deposit. I'm also making it easier for tenants to move into my rentals which makes my rentals more desirable and will reduce vacancy time.
If anyone's interested in learning more, send me a private message.
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47 Replies
- Investor · Milwaukee, WI · Member since 2013 · 1k+ posts · 1k+ votes6y
Originally posted by @Jim K.:
I agree with @Nathan Gesner The writing's been on the wall for a very long time now. And it's very clearly because of abuses of the free market, a lot of landlords pulling a lot of crap that they shouldn't be, especially down in C and D-class level properties where the tenants are weakest and the landlords have the most power. On the one hand you have the big guys with in-house property management, who take what they can get away right up to the line, on the other, you have the amateurs who will do practically anything to make their one or two rentals work like their spreadsheet says it should. The experienced small mom and pop operator can still make a good living pitted against these two groups. No amount of rent control legislation has ever changed that basic reality anywhere in America, despite all the hand fluttering and pearl clutching.
We live in a country where no one has any money aside and Bankrate.com estimates that a $1K emergency would push 60% of Americans into debt. That's a country full of completely-exposed financial weaklings practically begging to be manipulated and taken advantage of by stronger, richer people with more resources than them. That's the paycheck-to-paycheck world the banks, the media, the corporations, the billionaires have been steadily working to create for generations. So now we have it, a nation of batteries whose sole mission in life is to make money for other people, and that's why rent control legislation and other measure to curb the greed and cupidity of landlords who can't help themselves from "maximizing their income per tenant" are going in everywhere. Because batteries always need a housing to be properly drained.
We can whine all we want that the sad shape this country is in on a personal finance level is cramping our landlording style. We very much helped bring it on ourselves. How many threads a day do we get here in the forums about how to shaft your tenant with this expense or that? How many times do we hear about people buying small MFs and throwing everyone out to remodel, force appreciation, and charge much more in rent? Hey, it's just business. There are hundreds of regular users on this board who think sending pay-or-quit notices on the fourth of the month if the rent hasn't been paid has no long-term consequences. Sorry. The practice creates enormous bad faith with renters, and that bad faith turns around to bite us all.
Pigs get fat. Hogs get slaughtered. The gubmint is just whetting its knives now. Wait for a downturn in the economy and see what kind of protectionary measures for tenants go in. Just you wait.
A fun read from you, as usual. But, you never say if you think the insurance idea is a good one or not???
- Austin, TX · Member since 2019 · 5k+ posts · 5k+ votes6y
Originally posted by @Nathan Gesner:
Your headline is false. Landlords can still have "security deposits" but they have to limit the amount or provide alternatives:
1. Traditional deposit but made in payments;
2. Deposit "insurance" where the Tenant pays a small, non-refundable premium each month; or
3. Reduced security deposit of no more than 50% of a month's rent.
I see the writing on the wall and am already heading this direction. Starting next month, I will be offering my tenants a deposit alternative. Instead of a $1,500 deposit up front, Tenant can opt to pay a monthly fee of $10 and Obligo will ensure protection of up to $1,500 for me as the Landlord. If the tenant causes $800 in damages, I file a simple, online claim with Obligo and they pay me the $800 with no questions asked, then they pull the $800 from the Tenant's bank account or credit card.
All my applicants are given a score and that score determines how big of a deposit they pay. If they are low-risk, they pay a 1x deposit while high-risk pays a 2x deposit. Paying $1,000 for first month's rent and $2,000 for a deposit is difficult for most anyone. If they could instead pay $1,000 for first month's rent and a $15 monthly fee, suddenly it's affordable for a lot more people. I can rent the property and still get the same level of security as a traditional deposit. I'm also making it easier for tenants to move into my rentals which makes my rentals more desirable and will reduce vacancy time.
If anyone's interested in learning more, send me a private message.
I like this idea, but Deposit insurance gives a third party the power over the damage repair money.
I wonder how much red tape and PITA it will be to file for the Deposit insurance money, and how long they will take to payout, and how much they will auto-refuse to pay (like insurance companies do) until you press the issue hard.
Plus how many 800 number calls to customer service located in Tim-buck-two will it take trying to get things straightened out when there is a problem.
Still it seems like it might be a good blade to have on the Swiss Army Knife.
- 6yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Nathan Gesner:
Originally posted by @Karen O.:
What stops the tenant from simply canceling the insurance after one month, paying say $15 to move-in and leaving the landlord with zero security?
I'd be requiring a year pre-paid (non-refundable) of the insurance, one year term leases, non-renewable without another year of insurance.... eventually the tenant gets eaten up in fees and has no security deposit coming back at the end. Probably need higher rent, too, to offset the risk. Don't see tenants winning anywhere (but at least the economy was stimulated, right?).
You have to use a company that specializes in this. I'm going to use Obligo. The tenant has to have a bank account and credit card, both with an available balance of at least $800. Obligo continues to check the card and account each month to ensure it's open. If the Tenant closes their account, Obligo goes after them and they notify the Landlord. As the Landlord, it would be a violation of the lease and I would start eviction immediately but I'm still safe because Obligo will guarantee the covered amount and it's their responsibility to go after the Tenant that closed the accounts. I personally think it's better than a traditional security deposit.
You misunderstand how the insurance works. Once the tenant signs up and makes that first payment, the Landlord is covered. Period. If the tenant shuts down their account the next day, that's between them and Obligo. I'm still covered as the Landlord for the agreed amount.
The tenant gets a HUGE benefit. Instead of paying a $1,200 deposit for a one year lease, they pay $10 a month or $120 a year. This makes it much more affordable for tenants to move in without increasing risk to the Landlord. What about high-risk tenants that require a double deposit of $2,400 and first month's rent? Instead of paying $3,600 to move in, they can pay $1,200 and a $12 monthly fee or $144. Yes, it's non-refundable but most tenants would prefer a monthly fee over a large lump sum up front.
You guys should read up on it. This is the way of the future.
some of my turnkey clients were having their buyers / or providing one year of renters insurance IE if they missed rent the insurance company paid.. it was an easy sell product.. but those companies sustained loss's that made writing that insurance not so fun.. so they just cancelled the policies.. I suspect this insurance will need to be very mindful.. for many tenants one they dont have checking accounts and for sure dont have credit cards.. but will be interesting to see how it plays out.. I can see this for higher end A B type tenants..
were rent is 2500 or more a month.. first last is 5k and then you need 2500 security deposit so 7500.00 to rent.. which is very common in our market..
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes6y
Originally posted by @Account Closed:
Your take is they will have more incentive, because the money is in an account instead of already "spent" as you say. But if the landlord has the power to take that money, is that really so different? Does this Obligo have rules that apply to when a landlord can go after that money? I dunno...maybe I'm not seeing it, but I'm not seeing much of a difference on that score.
The other issue I worry about, and I suppose this is no different than now, is how about when the damage exceeds what a landlord can get back? To me, if a renter has less skin in the game than they have now, that problem is likely to get worse.
Again, my feelings are mixed. On the one hand, this seems like a very good solution for all sides. I would personally like to see the amount of coverage increased ten-fold. However, as I already touched on, I worry that with this safety net, it will be a free-for-all and units are going to get trashed. Will the insurance cover the vacancy and hassle of fixing a unit too? Or just the cost of repairs???
I dunno...I dunno...sometimes solutions cause more problems...
Obligo really acts as a transaction coordinator/guarantor. They don't get involved in the fight. Landlord is contractually obligated to notify the tenant of any charges before they can file a claim with Obligo. If the Tenant disputes a charge, there is a process for that. According to Obligo, it doesn't happen often.
If the tenant has a $1,000 deposit and causes $2,000 in damages, you have to go after the Tenant for the additional $1,000. If Obligo covers the tenant for $1,000 but there's $2,000 in damages, you have to go after the Tenant for the additional $1,000. Nothing changes there. HOWEVER...if a Tenant is higher risk, you can require them to buy additional coverage through Obligo or pay a traditional deposit. Again, this is only for tenants that meet your requirements and those of Obligo.
Obligo will cover anything that would be covered by a traditional deposit. Cleaning, repairs, unpaid rent or utilities, or whatever.
I've been looking into this for a couple years and it just makes sense.
The DIY Landlord Book4.7247 Reviews - Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes6y
According to Obligo, they do not scrutinize the Landlord's claim. You file the claim, they pull the money from the tenant's account, they pay you. I don't remember exactly but I believe they pay the Landlord within three banking days or something like that.
I know a property manager that's been using them for over a year with around 900 rentals and he has nothing but good things to say.
The DIY Landlord Book4.7247 Reviews - Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes6y
@Jay Hinrichs if the tenant doesn't qualify, they pay a traditional deposit or they rent from someone else. Easy.
The DIY Landlord Book4.7247 Reviews - 6yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @Nathan Gesner:
@Jay Hinrichs if the tenant doesn't qualify, they pay a traditional deposit or they rent from someone else. Easy.
Gothca, I suspect in reality at least from my experience in the mid west the renter class that most landlords have IE C class
are going to have a very hard time qualifying and many even understanding it.. :) like I said for the nicer more sophisticated renter I get that for sure. !
- Member since 2018 · 211 posts · 164 votes6ysounds like some bs to me. Renters insurance doesn't cover landlord incase of tenant default. a security deposit does though. look on the bright side, at least theirs no " rent control" like we have in CA. so don't get to bummed out about it. It can be worst lol
- Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes6y
Originally posted by @Jay Hinrichs:
Originally posted by @Nathan Gesner:
@Jay Hinrichs if the tenant doesn't qualify, they pay a traditional deposit or they rent from someone else. Easy.
Gothca, I suspect in reality at least from my experience in the mid west the renter class that most landlords have IE C class
are going to have a very hard time qualifying and many even understanding it.. :) like I said for the nicer more sophisticated renter I get that for sure. !
I think there are two issues here, from my perspective. An incredible number of casual LLs here in western PA lower C'class longer-term (multiyear) rentals pocket the security deposit in full as a matter of course. This has happened to all of the last four tenants I've placed. The theft creates enormous bad faith. In my experience, the tenant understands the need for the LL to have a security deposit. But, if they're experienced tenants in this area they know how it is. They very heavily suspect they'll never see that money again in 2, 3, 4 years after they move out. Bad faith from the start, poisoning the business relationship.
The second point is that getting that security deposit is usually done in times of need by a cash advance on a credit card, a private loan from a friend, a high-stress method to begin with. These people have no savings and haven't a clue about financial literacy. I understand this well because I used to be one of them.
That security deposit isn't just money. It represents the thing people with the money habits I'm describing most despise, the unexpected or gotcha-fee expense they believe is likely UNFAIR. It's a rich a-hole telling them to pay and at the same time telling them to "trust me." That money is toxic. C-class LLs should figure that out quick.
i rent to people who have never seen $7500 in cash together in one place. The second they see over $500 they're fanning the bills out in front of them, taking selfies of themselves holding the money, posting them on social media. I watched a Maury segment online last night -- after she proved he was the baby daddy, the guy took a $100 bill out of his pocket and knelt on it to propose to his girlfriend with a (maybe diamond?) ring. This is how cash is being perceived more and more among the poor in the age of electronic payment and direct deposit.
Anything that better negotiates the need for a lump-sum security deposit is a very good idea. Even if the tenants don't qualify for it, knowing you offer it is a mark that you just MIGHT be more trustworthy and honest about security deposits than their last LL. Nathan's obviously talking from the same kind of experience here. Tenants who hand over the security deposit and sourly believe it's gone the minute they let go of the money.
- 6yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
@Jim K. ya I get you on the 7500 if they had that they can buy the whole house for that and do their own handyman stuff :)
some of my clients do not take a security deposit at all. they take a one time non refundable move in fee of 500.00.. so there is no expectation of a deposit the tenant already knows they are not getting back. So no big drama at the end.. they just leave you prey they did not do to much damage and go do it again.
- Handyman · Pittsburgh, PA · Member since 2018 · 5k+ posts · 13k+ votes6y
Originally posted by @Jay Hinrichs:
@Jim K. ya I get you on the 7500 if they had that they can buy the whole house for that and do their own handyman stuff :)
some of my clients do not take a security deposit at all. they take a one time non refundable move in fee of 500.00.. so there is no expectation of a deposit the tenant already knows they are not getting back. So no big drama at the end.. they just leave you prey they did not do to much damage and go do it again.
Again, Jay, a "move-in fee" is just blood money. It's an even more toxic charge than a security deposit, replacing "don't expect this money back" with "there is contractially no chance you will see this money again."
- Member since 2019 · 226 posts · 107 votes6y
Originally posted by @Maurice Smith:
sounds like some bs to me. Renters insurance doesn't cover landlord incase of tenant default. a security deposit does though. look on the bright side, at least theirs no " rent control" like we have in CA. so don't get to bummed out about it. It can be worst lol
I agree with you 100%. I'm not seeing the math for how an insurance company gives both parties a better deal than they can work out on their own via security deposits. If that's true, it's the first time an insurance plan benefited anyone other than the underwriter.
Now, here's another wrinkle that pulls money from the LL pocket....there's a movement in Cleveland, let's hope it dies an excruciating death too, to extend to the entire county (11+ suburbs!) free, no charge lawyers to tenants to fight evictions with an ability to make the eviction disappear as a sealed judgement. No free lawyers for those who have their money invested, just the deadbeats or destroyers.
- Member since 2018 · 211 posts · 164 votes6y
Originally posted by @Daryl Luc:
Originally posted by @Maurice Smith:
sounds like some bs to me. Renters insurance doesn't cover landlord incase of tenant default. a security deposit does though. look on the bright side, at least theirs no " rent control" like we have in CA. so don't get to bummed out about it. It can be worst lol
I agree with you 100%. I'm not seeing the math for how an insurance company gives both parties a better deal than they can work out on their own via security deposits. If that's true, it's the first time an insurance plan benefited anyone other than the underwriter.
Now, here's another wrinkle that pulls money from the LL pocket....there's a movement in Cleveland, let's hope it dies an excruciating death too, to extend to the entire county (11+ suburbs!) free, no charge lawyers to tenants to fight evictions with an ability to make the eviction disappear as a sealed judgement. No free lawyers for those who have their money invested, just the deadbeats or destroyers.
Oh wow .. that's news to me. Hopefully that wont happen. Thank you for sharing - New to Real Estate · Cincinnati, OH · Member since 2019 · 51 posts · 15 votes6y
@Jason Vandermark Remember this is the same city that elected Jerry Springer to City Council and then mayor (it was not a direct election back then). All that just three years after the admitted to soliciting a prostitute the first time he served in office. I live in the Cincinnati area but moved out of the city to avoid most shenanigans like this...
- New to Real Estate · Cincinnati, OH · Member since 2019 · 51 posts · 15 votes6y
@Nathan G. That's amazing. I'd love to hear more about this.
- New to Real Estate · Cincinnati, OH · Member since 2019 · 51 posts · 15 votes6y
@Jonathan Brazer I have a friend (in Cincinnati) who does this. He usually deals with C/D properties so the move-in fee is required on paper but if his tenants make sure the place is in good shape when they leave he'll give back a decent portion of it (this is not on paper). Many of his tenants pay weekly or biweekly so the prospect of getting a couple hundred of their move-in fee back when they leave is pretty exciting to most.
- Investor · Philadelphia, PA · Member since 2017 · 48 posts · 12 votes6y
@Nathan G. Thank you I signed up for a demo
- Rental Property Investor · Washington, DC · Member since 2019 · 7 posts · 1 vote6y
@Nathan G. I think your approach and line of thinking on this subject is brilliant. I’ll definitely be sending you a DM to learn a little more on this. Thank you for sharing
- Knoxville, TN · Member since 2019 · 111 posts · 57 votes6y
Originally posted by @Daryl Luc:
Originally posted by @Maurice Smith:
sounds like some bs to me. Renters insurance doesn't cover landlord incase of tenant default. a security deposit does though. look on the bright side, at least theirs no " rent control" like we have in CA. so don't get to bummed out about it. It can be worst lol
I agree with you 100%. I'm not seeing the math for how an insurance company gives both parties a better deal than they can work out on their own via security deposits. If that's true, it's the first time an insurance plan benefited anyone other than the underwriter.
From what Nathan has written, it isn't really insurance, although it sort of looks like it from the landlord's end. Instead, the tenant pays monthly for the right to pay damages at the back end. If damages occur, the third party company pays the landlord, then takes it from the tenant's account or credit card (and no doubt pursues them into collections, if needed). So, as long as damages are under the security amount, the landlord stays out of court and gets access to the cash in a reasonable amount of time (but can lose it, if the tenant appeals and wins). Presumably the tenant can be required to carry renter's insurance on top of this, to cover malicious damages or their kid trying the outlet challenge and burning down the building...
- Member since 2018 · 208 posts · 90 votes6y
Originally posted by @Karen O.:
Originally posted by @Daryl Luc:
Originally posted by @Maurice Smith:
sounds like some bs to me. Renters insurance doesn't cover landlord incase of tenant default. a security deposit does though. look on the bright side, at least theirs no " rent control" like we have in CA. so don't get to bummed out about it. It can be worst lol
I agree with you 100%. I'm not seeing the math for how an insurance company gives both parties a better deal than they can work out on their own via security deposits. If that's true, it's the first time an insurance plan benefited anyone other than the underwriter.
From what Nathan has written, it isn't really insurance, although it sort of looks like it from the landlord's end. Instead, the tenant pays monthly for the right to pay damages at the back end. If damages occur, the third party company pays the landlord, then takes it from the tenant's account or credit card (and no doubt pursues them into collections, if needed). So, as long as damages are under the security amount, the landlord stays out of court and gets access to the cash in a reasonable amount of time (but can lose it, if the tenant appeals and wins). Presumably the tenant can be required to carry renter's insurance on top of this, to cover malicious damages or their kid trying the outlet challenge and burning down the building...
Kind of sounds like the renter's best interests aren't really being taken care of..no? How funny is that - a government ordinance claiming to help the people that are really just to line the pockets of big (insurance) companies. In the end, the renter will still have to pay and probably their rent will go up as the owner's look to mitigate the risk..
- 6yColleen F.Pro MemberInvestor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
The person who pays $10 a month is paying $120 a year that they never see in the end. It is like a move in fee on installment. Then they have to keep their bank balance up so it is an enforced saving. For a certain segment who manage money short term this will work. For a higher income tenant who keeps a decent bank balance it will work. Think about it in the end the tenant stills has to reserve the money but it is in their bank account. I do wonder how this will work for the tenants who truely are paycheck to paycheck and this company constantly has to contact them due to lack of reserves in their bank account.
This isn't traditional insurance where the premium is based on the tenant risk. I have to wonder how long this insurers will offer the product at a low cost. On the other hand an installment deposit may be worse. How will the courts handle it when they stop paying the deposit. Will you be able to file for eviction over that?
It is an interesting development we should all watch.
- Real Estate Agent · Cincinnati, OH · Member since 2014 · 170 posts · 102 votes6y
Honestly y'all, a landscape shift in the Cincinnati market could be very beneficial for those of us who hustle and adapt. It's easy to forget sometimes how emotional real estate investing can be (for ALL of us, but more so for some than others), and having City Council shake the tree may actually lead to more coconuts on the ground for savvy investors who are willing to figure out how to change with the times.
I wouldn't be surprised if a lot of long-time investors take this as their cue to divest. Some non-local investors may do the same to get their money where they feel it's better protected. I've had a cold-call-driven lead generation model since 2018, I've spent enough time on the phone with rental owners; my gut is telling me that many of the less sophisticated and amateur investors will take this as a cue to step away from properties that haven't been all that profitable for them anyways (due to operator error).
Regardless, I'm still buying in Cincinnati. Take your talents to South Beach if you want, more opportunities for those of us who stay.
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