A Multifamily Security Deposit Alternative that’s a Win-Win

The pandemic has heightened focus on multifamily leasing, and perhaps no issue has received more attention than the push for security deposit alternatives. Traditional deposits have become a sticking point with renters over the years, to the extent that even the government has gotten involved. Operators must protect their assets against residents who aren’t good stewards of their apartments. But standard deposits are typically either too burdensome for renters at lease signing, or too low to properly protect the operator. Lately, the struggle to pay rent brought on by COVID-19 has amplified an already delicate situation (U.S. apartment rents are climbing rapidly in 2021). But even before the economy turned upside down last year, lawmakers were pushing legislative initiatives to limit deposits that take money out of renters’ pockets and the economy. Bloomberg recently estimated that $45 billion is locked up in residential security deposits. As rents continue to rise, security deposit alternatives are coming more into play. Deposit installment plans, lease insurance and surety bonds have become go-to solutions to protect assets while reducing the cost for residents. Legislators mandating security deposit options States and local municipalities have gone to varying lengths to ease the security deposit burden on residents, even mandating that landlords allow renters to use their deposit money to help pay for rent. About a dozen states have passed laws limiting security deposits to no more than one month’s rent. Last year, Cincinnati became the first U.S. city to require properties with 25 or more apartments to offer residents an alternative to a cash payment for a security deposit. The decision set the stage for another key piece of legislation to move the industry toward security deposit alternatives. Pennsylvania House Bill 2427, introduced last summer, would require landlords charging security deposits to offer prospects some type of alterna...