Experiences with security deposit alternatives: Rhino, LeaseLock, Obligo?

Question

I’m considering offering a security deposit alternative (deposit insurance, surety bond, or similar) instead of, or alongside, a traditional cash deposit. I’d like to hear from landlords who have actually used these products.

I’m especially interested in Rhino, LeaseLock and Obligo, but I’d welcome experience with any provider.

• Claims: When a tenant left owing for damage or unpaid rent, how did the claim go? How long did payment take, and did you recover the full amount you claimed?
• Coverage limits: Was the coverage enough to cover your real losses, or did you end up short?
• Tenant quality: Did offering a no-deposit option change the applicants you got, for better or worse?
• Underwriting: Have you seen providers tighten credit or rent minimums lately? I saw the recent thread about Findigs quietly ending Termwise.
• Legal and lease setup: How did you handle these in your lease and under your state’s deposit laws? Did you have any problems if a provider stopped covering a tenant mid-lease?
• Overall: Would you use it again, or did you go back to cash deposits?

Claims: When a tenant left owing for damage or unpaid rent, how did the claim go? How long did payment take, and did you recover the full amount you claimed?

Coverage limits: Was the coverage enough to cover your real losses, or did you end up short?

Tenant quality: Did offering a no-deposit option change the applicants you got, for better or worse?

Underwriting: Have you seen providers tighten credit or rent minimums lately? I saw the recent thread about Findigs quietly ending Termwise.

Legal and lease setup: How did you handle these in your lease and under your state’s deposit laws? Did you have any problems if a provider stopped covering a tenant mid-lease?

Overall: Would you use it again, or did you go back to cash deposits?

My properties are in Indiana, so Indiana experience is especially helpful, but I want to hear from anyone. Thanks!

Simon W. · Answer

I haven't used these either, but there's a bookkeeping difference worth knowing if you end up running both side by side.

A cash deposit isn't income. It's the tenant's money you're holding, so it sits as a liability on your books until move-out, and it only becomes income when you keep some of it for damage or back rent. A lot of people book deposits as rent and then wonder why their income looks high the year they sign a bunch of new leases.

With a surety or insurance product there's nothing to hold, which is simpler. But if you file a claim, the payout is income when you get it, or it offsets the repair cost if that's what it was for. Also check who pays the fee. If any of it is on you, that's an expense to track.

If you offer both options, keep a clear list of which tenants have a cash deposit and which have coverage. When someone moves out 18 months from now, you don't want to be guessing whether there's money to send back.

Harrison C. · Answer

I haven't used Rhino, LeaseLock or Obligo, so I can't answer the claims questions. I'll give you the other side from someone who stayed with cash deposits, renting by the room.

A couple of things I'd check before switching:

The claim is only as good as your move-in record. With cash or a bond, the fight is the same: what did the room look like on day one. Dated photos of every wall, floor and fixture, signed off by the tenant at move-in, is what wins it either way. If you don't do that today, fix that first.

Ask each provider what happens when the tenant cancels or stops paying the monthly fee mid-lease. With cash you hold the money. With a bond you hold a promise that can lapse, so your lease should say the tenant owes a cash deposit if their coverage ends.

Run the tenant's math too. A cash deposit comes back if they leave the place clean. A monthly fee never comes back. Some good applicants would rather pay one month up front.

I keep it at one month's rent per person, and every person has their own lease, so a claim is always about one resident and one room.

Hope someone with real claims experience on those three chimes in. That's the part worth hearing.

Richard (Ryszard) Cieplechowicz · Answer

Ask each provider the same four things before you pick one. Who decides what counts as damage, and what proof do they want from you? How long from a filed claim to payment? What is the cap compared with your real turnover costs? And does the tenant still owe the provider after a claim, since that changes how collections work. Whatever you choose, keep the move-in and move-out photos and the ledger in one folder, because the claim is only as good as that paperwork.

Daniel Jung · Answer

My take is simple: the product only helps if your paperwork is already tight. Where I have seen landlords get hurt is assuming no deposit means less record keeping. It is the opposite. You need the same dated move-in photos, the same signed condition report, and a clear ledger, or any claim turns into a debate. I also would not offer it to a borderline applicant to make the numbers work. If screening is weak, cheaper move-in money just brings the problem sooner. Offer it after approval, not as a way to get to approval, and keep one month cash as the plain default.

Drew Sygit · Answer

First, understand you're not going to get a "get out of jail free" pass with these services.

Meaning, they won't cover S8 tenants or slum-tenants that trash your property.

Some of them did when they first started out, but they quickly tightened their guidelines to avoid going bankrupt due to claims.

What the services are really intended for are lowering the MoveIn Funds for tenants with decent credit.

We tried one out that had a minimum tenant credit score of 640.

• It went okay, but we found their processes too slow & complex, so discontinued our relationship with them.

It went okay, but we found their processes too slow & complex, so discontinued our relationship with them.

Carl Millsap · Answer

@John Kennedy we use Leap and Obligo. Claims: When a tenant left owing for damage or unpaid rent, how did the claim go? How long did payment take, and did you recover the full amount you claimed?C: We just filed our 3rd claim with Leap and each time it's been a smooth process. We videotape all move-out conditions which isn't required to my knowledge. We submit the video and pictures with the lease details and in the 3 cases each was an eviction so we submitted that paperwork as well. Smooth process. We almost had a hiccup with a claim last week because of a timeline issue. With Leap you have 60 days to submit the claim if I'm not mistaken.

• Coverage limits: Was the coverage enough to cover your real losses, or did you end up short?C: Yes, in one case they covered until we leased the unit again.
• Tenant quality: Did offering a no-deposit option change the applicants you got, for better or worse?C: No because you only get this option once you qualify for our unit. If you don't pass our screening you won't be offered the deposit alternative.
• Underwriting: Have you seen providers tighten credit or rent minimums lately? I saw the recent thread about Findigs quietly ending Termwise.C: I haven't seen this shift. Each company underwrites the prospective tenant and recommends you don't sign a lease with them until they give the approval. We let the prospect know although they qualified unless they want to come up with the full deposit, and other move in expense we can't move forward until we have a decision from Leap or Obligo.
• Legal and lease setup: How did you handle these in your lease and under your state’s deposit laws? Did you have any problems if a provider stopped covering a tenant mid-lease?C: I haven't experienced coverage being dropped mid-lease. You're not holding the deposit, the agreement is between the provider and the tenant so no impact on how you handle deposits. You're just the beneficiary of an insurance policy for lack of a better description.

Coverage limits: Was the coverage enough to cover your real losses, or did you end up short?C: Yes, in one case they covered until we leased the unit again.

Tenant quality: Did offering a no-deposit option change the applicants you got, for better or worse?C: No because you only get this option once you qualify for our unit. If you don't pass our screening you won't be offered the deposit alternative.

Underwriting: Have you seen providers tighten credit or rent minimums lately? I saw the recent thread about Findigs quietly ending Termwise.C: I haven't seen this shift. Each company underwrites the prospective tenant and recommends you don't sign a lease with them until they give the approval. We let the prospect know although they qualified unless they want to come up with the full deposit, and other move in expense we can't move forward until we have a decision from Leap or Obligo.

Legal and lease setup: How did you handle these in your lease and under your state’s deposit laws? Did you have any problems if a provider stopped covering a tenant mid-lease?C: I haven't experienced coverage being dropped mid-lease. You're not holding the deposit, the agreement is between the provider and the tenant so no impact on how you handle deposits. You're just the beneficiary of an insurance policy for lack of a better description.

• Overall: Would you use it again, or did you go back to cash deposits?

Overall: Would you use it again, or did you go back to cash deposits?

C: I keep it as an option because it lowers the barrier of entry for qualified tenants. I think that's the key is it's not a tool to get someone in who otherwise wouldn't qualify. This is to help those who qualify have less out of pocket expense to move in.

Hope this helps.

Chris Seveney · Answer

We work with another provider and, to date, have not had any issues, but as others mentioned, you definitely need to do a lot of due diligence.

Jim Johnson · Answer

The claims process is what I'd be most interested in hearing about. Offering a deposit alternative sounds convenient for tenants, but how much protection does it actually give the landlord when there's damage or unpaid rent? Especially if the provider disputes part of the claim or takes weeks to pay. That's what I'd want to know before considering it over a traditional deposit.

Experiences with security deposit alternatives: Rhino, LeaseLock, Obligo?

Experiences with security deposit alternatives: Rhino, LeaseLock, Obligo?

Most Popular Reply

8 Replies