Security Deposit Alternative?

14 Replies

Have you used Rhino or a similar service in lieu of collecting the full security deposit at start of lease?


Quoting from https://www.nbcnews.com/news/u...
With Rhino, the platform replaces the traditional security deposit to a landlord and instead provides renters with a monthly low-rate insurance policy, simultaneously providing protection to property owners. It frees up money for the renter and provides the coverage that landlords require. For renters, this means paying a monthly rate for insurance that's scaled to their rent. For property owners or landlords, Rhino covers excessive damages or the loss of rent.

Hey @Susan H. ,

We do not use Rhino, however, we are beginning to offer all residents the option of paying a security deposit or paying an extra 10% per month in rent.  So, if rent is $700, the tenant could pay a $700 deposit or a non-refundable 10% monthly fee of $70.  Essentially, rent would be $770/month.  Many of our tenants like this for several reasons. 1) They feel they have had their deposit unfairly deducted from in the past, and 2) They would rather keep that large chunk of money now and pay a bit more rather than shell it all out.

It's usually beneficial for us as well because we make more in the long run.  Risks associated with it include the possibility of tenants leaving early and not paying rent on the last month, etc. However, this is offset by increased cash flow. I was made aware of this idea by some property managers here in Iowa.  

I don’t but just north of me in Cincinnati you have to offer 2 of the following 4 options.

1 full deposit

1/2 deposit

Stretch deposit over 6 months

Rhino or similar service

No surprise rhino was helping fund the push and I can see both sides of the argument.  For the tenant though they are paying money they will never see and if they stay long term it can add up.  Supposedly the claim process is easy but would love to hear of any first hand experience.

Personally for me the deposit is a key part of screening.  You know you are looking and should have known for a while and budgeting for a deposit.  If you did not and have no savings I don’t think you will be a good match.  Before you submit an application I let you know deposit and first month rent is due in 48 hours and if that is not doable please don’t waste your money on the application.  


I don't use it, but it is likely going to become a required offering in my area soon enough. Personally, I find your ability to save enough money for a security deposit to be a criteria for renting to you. If I were forced to offer it, my rental criteria would just now include a minimum amount of reserves in your bank account. Sadly, these services appear aimed at younger people, telling them don't save for the future, instead spend that money on take-out, Netflix, and Starbucks.

I'd be much more willing to use a service like this if I could set a higher than security deposit limit. I'll always take a $2K deposit from a tenant over a $2K promise from an insurance company. However, if I could have a $5K or $10K promise from an insurance company, that'd be enticing. 

Originally posted by @AJ Leman :

Hey @Susan H.,

We do not use Rhino, however, we are beginning to offer all residents the option of paying a security deposit or paying an extra 10% per month in rent...    

Interesting idea here! Thanks for sharing.

~Susan

Originally posted by @Adam Martin :

I don’t but just north of me in Cincinnati you have to offer 2 of the following 4 options....

Personally for me the deposit is a key part of screening.  You know you are looking and should have known for a while and budgeting for a deposit.  If you did not and have no savings I don’t think you will be a good match.  Before you submit an application I let you know deposit and first month rent is due in 48 hours and if that is not doable please don’t waste your money on the application.  

I don't charge a fee for the application, but my qualification and application criteria note similar "due" dates/times. Paying the security deposit in full is (to me, anyway, in my competitive market) a demonstration of financial responsibility. There are very few SFHs on the rental market right now in my regional area and despite increased rents, they seem to come on and off the market within a few days.  

~Susan

Originally posted by @Greg M. :

I don't use it, but it is likely going to become a required offering in my area soon enough. Personally, I find your ability to save enough money for a security deposit to be a criteria for renting to you. If I were forced to offer it, my rental criteria would just now include a minimum amount of reserves in your bank account. 

That's an interesting idea. 

Since my town just now created a "landlord registry" I don't think we'll see security deposit alternatives being mandated anytime soon.

~Susan

One of the concerns I'd have about a service like Rhino is, what happens if the tenant stops paying the monthly Rhino fee?  I assume that means the security deposit insurance also disappears.  

Perhaps a way around that is if the LL/PM is notified before payment lapses and can pay it instead.  Their FAQs section is pretty skimpy.  But it's something I've thought about and I'll need to e-mail them sometime to get answers to the plethora of obvious questions I have that their website doesn't bother answering.

The other thing that makes me nervous.  They're relatively new and I haven't heard many reviews about them.

@AJ Leman I know it might feel a bit riskier upfront for a landlord but I love this idea. You can always just set the extra 10% aside until it matches a security deposit with the added bonus that you get to keep it at the end.

@Zachary Elliott Yep, that is the plan.  And if we don't use it, then it is just 10% extra cash flow.  Honestly, we are quite lenient with our deposits (probably ought to be more strict), but this stratergy seems like a win-win in many cases.

@Susan H. Here in Pittsburgh, we started using SayRhino for all of our properties when they opened up from Multifamily Dwellings to include SFR's. Since then, we have leased all of our properties with this practice in place. We've even filed claims with SayRhino when a tenant has been unable to pay due to the pandemic and had to break their lease. We generally try to get the tenant to pay the lump sum of the rhino policy upfront so that there is minimal risk, but we also have given our tenants that score high enough on our screening process the opportunity to pay a traditional security deposit. So far so good!

Originally posted by @Susan H. :

Have you used Rhino or a similar service in lieu of collecting the full security deposit at start of lease?


Quoting from https://www.nbcnews.com/news/u...
With Rhino, the platform replaces the traditional security deposit to a landlord and instead provides renters with a monthly low-rate insurance policy, simultaneously providing protection to property owners. It frees up money for the renter and provides the coverage that landlords require. For renters, this means paying a monthly rate for insurance that's scaled to their rent. For property owners or landlords, Rhino covers excessive damages or the loss of rent.

 Personally I like to see that someone can pay a deposit and first months rent at one time. If you can't afford that then it generally means your finances aren't in the best shape, and therefore would not make the best tenant. 

If someone moves in mid month we usually make them pay prorated plus a full month plus deposit. 

If someone can't afford it then I view it as a sort of screening tool. 

I'd rather have a vacancy for 6 mo. or more (especially in today's Tenant Friendly Environment) than put a bad potentially nonpaying tenant in a building. It's not worth the headache, frustration, and cost. And the more nondiscriminatory screening and filtering tools you have the better. 

Originally posted by @Eric Weldon-Schilling:

The insane thing about the question “if they don’t have one full months rent and a deposit that is equal to that (and whatever other costs you decide to stick in there too) then how will they pay the rent?” Is that it doesn’t take into account that in a normal month they will be paying a lot less than you’re asking for.
example: rent is 800 a month. Landlord requires first and last month and a deposit of $800. That’s $2400 up front just to move in. Not counting the app fee which is usually between $50-$100. Or pet deposit/fees which could be $500. Or the fact that the person would have had to pay the last months rent at their previous home. In a normal month the person is paying $800 toward rent.
in a month where one moves, they’re now paying $800 +$1600 +$750( previous rent) +$75(app) + $500 (pet)

That’s asking a person to shell out almost $3700 at once. Most renters don’t make that much in a Month. Even if they do, they likely have other expenses.
I actually like ajs idea about changing an extra 10% per month. I wouldn’t have any problem with doing that and it’s so much better than having to shell out multiple thousands at once. 

If they have it it means they know how to save money. That's why I like finding people with no problem with both. It means they are financially responsible. 

I'm not their friend. 

I'm not their family. 

I'm not trying to help them get their footing when their finances aren't great. 

I'm their landlord. Looking to ensure I get paid for services rendered. If I have tenants living totally paycheck to paycheck then that reduces my chances of a paying tenant when things go south with any individual aspect of their financial lives (car breaks, job loss, reduction in hours, etc.)

I own over 100 units and because of this mindset we only had one tenant with problems paying during COVID and because we look for qualified tenants we were able to be flexible with them to get caught up because the rest of the portfolio was supporting the bills. 

It sounds harsh, but there's a lot that I do charity wise to help people get back on their feet, however I can be charitable and treat my business like a business at the same time. 

 

Originally posted by @Greg M. :

I don't use it, but it is likely going to become a required offering in my area soon enough. Personally, I find your ability to save enough money for a security deposit to be a criteria for renting to you. If I were forced to offer it, my rental criteria would just now include a minimum amount of reserves in your bank account. Sadly, these services appear aimed at younger people, telling them don't save for the future, instead spend that money on take-out, Netflix, and Starbucks.

I'd be much more willing to use a service like this if I could set a higher than security deposit limit. I'll always take a $2K deposit from a tenant over a $2K promise from an insurance company. However, if I could have a $5K or $10K promise from an insurance company, that'd be enticing. 

 That's exactly my problem with the service. Now as the landlord I have to jump through the hoops to hope to get paid for tenant damage and uncleanliness rather than the tenant. If I had to choose my poison, I like the above idea of collecting an additional 10% every month in lieu of a deposit, which improves your profitability in instances where tenants did little/no damage. What I would probably do if I stopped collecting a deposit would be a hybrid of the two approaches - rent that was say 5-10% higher and the deposit insurance. Then you make the profit on the front end and have a hedge in case of damages or if the insurance company refused to pay.