top of page

How Security Deposit Alternatives Work and What it Offers?

Security deposits protects landlords from facing losses in case the tenants cause damage to the property. But in the beginning, it is a big financial challenge for tenants to pay the deposit fee when the moving cost, utility bills, pet fees, and rent comes in.

To relieve tenants, it is recommended to go for alternative security deposits instead of traditional expensive security deposits. Even, some states require landlords to offer alternative tenant-friendly options.

Landlords know the worth of security deposits. It helps in maintaining a steady cash flow. Landlords use these deposits funds in replacing broken appliances, maintenance and other unexpected expenses. It is also a way to motivate the tenants to take care of the property and make sure they do not damage to the property unnecessarily.

Furthermore, many tenants can’t pay the security deposits before moving in to a new property. According to a research majority of the population live from paycheck to paycheck and are not able to save money. This makes it hard for them to find a suitable accommodation.

According to a research conducted by the Federal Reserve Bank, 4 in 10 Americans finds it really hard to cover an unanticipated expense of $400 let alone a $1000 in security deposit.

This could be a challenge for landlords but it is also a risk to rent your unit to someone who is struggling with their budget and are not able to pay security deposit. And this creates a need for alternate option as a solution to the above problem.

What are Security Deposit Alternatives?

These are alternative options to security deposits that makes life easier for both tenants and landlords. Alternate options help landlords fill vacancies quickly and make moving in affordable for tenants. Pay-per-damage, lease insurance, credit authorization service, are some of the alternative options.

Renter’s Choice Law

While these alternatives laws are here for a while now, many states need you to comply to Renter’s Choice Laws. These laws say you have to accept the alternatives.

There are many states that, depending on the states

City councils ask/need you to:

· Pay deposits in installments instead of full payments

· Drop deposit insurance

· Dropping the total deposit to half of the rent.

The Downside of the Conventional Security Deposit

Conventional security deposit ranges from one month rent to three months rent. Majority of the tenants do not have that much savings. Moreover, the is given back to the tenant in case of no violations. The money just stays in a bank account. Similarly, there are millions of dollars in the banks in the form of security deposits.

Benefits of Alternative Options

If you look at it, alternative options of security deposits have no harm for both tenants and landlords. It is a win-win situation.

For landlords, Security deposits works as a protection. Alternative options guarantee the same protection as security deposits. On the other hand, tenants, by using alternative options get ease on the budget. Their burden reduces and they are easily able to rent a unit.

Lower Vacancy Rate

Since the purpose alternate options is to lower the deposit, it becomes a lot easier to fill vacancies because there are more tenants that can afford alternatives options. Since the initial rental cost is lesser as compared to the initial rent plus full security deposit. This way you can stay ahead in the market.

Furthermore, you can even get low credit score people on board and increase the chances even more. This will further increase the chances of faster occupancy. This will keep the cash flow steady.

Be Smart in Protecting your Property

Not too many people know that it is a smart move to go from conventional deposit to alternative options. The reason is, you go from upfront deposit to options like damage insurance which covers damages in more than the deposit amount. For instance, there are insurance plans that covers up to $5000 in damages and you know the deposit amount is a lot less than that. This saves you money in case of unexpected circumstances.

These attractive insurance plans are factors like pets, renter’s history, credit history etc.

Another option being used is a surety bond. This may be less than the traditional security deposit. The fee that tenant pays is usually less than 20% of the actual amount. There is another way, that is the tenant pays a small monthly fee. In case damages happen, the issuer of the bond pays for the damage and that way the landlord does not have to pay for the damages.

Give Renters Freedom to Choose

Excellent landlords give their tenants freedom of choice. Tenants then choose the option that suits best their financial situation. This way tenants benefits from the system and have more control over their budget. This makes them happier tenants and makes you the best landlord in the market.

There exist some tenants that would not have any problem paying the full security deposit upfront. But, majority of the tenants would go for the alternative options you make available for them. Making renting easy in these hard times for tenants can actually make your property an attractive option in the market.

Disadvantages of Alternate Options

As mentioned above, alternative options help landlords lower their vacancy rates.

On the other hand, it makes housing easier for tenants. They can move into a new unit by paying a small fee instead of a large sum in the form of security deposit. Both tenants and landlords are taking advantage from this system. but the question is, is this grass always greener? Or there any disadvantages?

Disadvantages of Alternative Options

Well, tenants don’t get their fee back in case of surety bonds. In case of security deposits, you can get your money back if there are no damages. But here, you don’t get it back even if the property is untouched and you have made zero damages. On top of that, if there are damages or rent unpaid, tenants need to repay the bonding company. Long story short, bonding is more expensive than security deposit if you think long term.

Furthermore, bonding companies shock tenants with bills in case of damages. As tenants think they paid for security deposit coverage. The reality is opposite. When the bonding company for the damages, they bill the tenants for the damages.

It is recommended that you make tenants aware of these details. They need to know what happens in case of damages.


The housing industry is shifting slowly from traditional security deposits to alternative options. These alternatives make it easier for renters to rent a house. It also makes life easier for landlords in terms of low vacancy rates and protection against damages.

15 views0 comments


bottom of page