The average security deposit rate in the USA for rental properties is quite high, making housing affordability a more complex issue. These rates become even higher depending on the market and location of the property. Additionally, many renters also have to pay an application fee to get their name on the list of people applying for a single property unit. This increases the costs even further. According to Zillow reports and surveys, they say that the average security deposit is $600 for small apartments.
Though all landlords, owners and property managers are not the same, the general condition of the industry is not great. After the $600 mentioned above is just an average report, the actual amount can be much higher in urban areas. There are further discriminatory factors like race and gender of people. In such cases, some markets tend to ask these people for a hefty deposit due to their biases.
Fannie Mae’s Q3 2021 National Housing Survey has pointed out that only 45% of people had a problem with housing affordability in 2017. In 2021, the numbers increased; more than 69% of Americans find it hard to find an affordable rental space. From inventory constraints and high deposits to biases against people, many factors are at play. So, is there an option to better the situation for renters? Yes, there is. Proper use of security deposit insurance can help make the upfront cost of renting homes much more affordable.
You can not other landlords and managers' biases, but you can surely do your own bit to help. Read on to find out how.
The cost of security deposits. Did you know?
According to CNS News report, they pointed out that the $600 average security deposit that we mentioned above is only paid by American white male renters. The Black and Hispanic population and even people from the LGBTQ+ community pay $750 or more in deposits. This has led to many renters pointing out that the upfront cost of moving and renting a new place in the USA is a major burden.
Though the biases are another issue altogether that needs an overall institutional change. But it is also safe to remember that without the security deposit, the property owner and manager can also land up in a lot of problems. Without the security deposit in place, property managers and owners can have to pay out of their own pockets in case of late rent payment or unforeseen damages to the property.
What is security deposit insurance?
Security deposit insurance is a smart solution for the high security deposit issue. This is a fairly new concept in the rental market, and many renters and landlords themselves are not aware of it. But this smart solution is gaining momentum due to its multiple benefits for both parties involved. The security deposit insurance works as a rental bond where the insurance company pays the security deposit on behalf of the renter. The renter does not have to bear the entire cost at one time; they can slowly pay the amount to the insurance provider and take some load off their shoulders.
Though you can not solve the biases of the whole real estate industry, you can surely do your own part. As a property manager and real estate business owner, you can start offering a security deposit insurance scheme offers to renters to make the renting process fairer. The security deposit insurance also covers all costs of unforeseen property damage and unpaid rental fees, exactly as the security deposit does.
Where does the current US rental market stand?
At present, a severe inventory shortage in the USA makes housing even more unaffordable. According to Statista data, the average home prices of single-family homes rose by a whopping 20% in the last couple of years. Lack of houses is a major problem for renters, but it is also a similar problem for real estate business to keep their business afloat. The only two solutions here are to reduce the security deposit and stand a chance to pay for damages from your own pockets. Or, you can opt for a security deposit insurance plan and get your tenants on board.
The top 6 benefits of using security deposit insurance
Here are the top reasons why security deposit insurance is the smartest choice for current real estate businesses and renters alike.
Gives you an edge over competitors
Most real estate businesses still have not started offering customers the option to opt for security deposit insurance. When you give renters this option, it already gives you an edge and a USP in the market. You can then also advertise your property as “deposit free”.
You lose fewer tenants during renewal
An average tenant turnover can cost around $1000 - $5000. That is a big blow for a real estate business. When you offer a security deposit insurance option to existing tenants, it can be a major incentive to renew the lease. Why? They will get extra cash in the form of the deposit you return. Also, they will not have to pay a hefty amount in increased deposits. They can just opt for a monthly premium scheme for security deposit insurance policies.
The community remains affordable for many
When you offer security deposit insurance options on your properties, you instantly make your properties much more affordable. This can not only drive up your sales but also help you do a little bit for the community and make housing a little more affordable in certain neighborhoods.
Saves you a lot of time
Collecting, calculating, returning and maintaining security deposits can be a major hassle for companies. When you opt for a security deposit insurance plan, your money comes in whenever you make claims for damage to property or unpaid rent. You can be free of the tedious administrative burden.
You never bear the cost of insufficient deposits
If your tenant cannot pay the deposit in some cases, you do not have to bear the burden of it. Your insurance provider will cover the costs, and you will never have to pay out of your own pocket.
Wrapping Up
Want to know if this new strategy can work for your business? Talk to our strategy and leadership team and let them guide you on the right path to success in this volatile real estate market.
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