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Are There Alternatives to Standard Security Deposit?

Windsor Landlord Offering Tenants a Deposit AlternativeIf you’ve owned a Windsor rental property for any length of time, you already know the weight of collecting a security deposit from your tenants. It’s a common practice for a reason: it may protect you from losing money if your tenant damages your property or stops paying their rent. Yet, just because a security deposit is traditional doesn’t mean it is obligatory or even necessary.

Countless landlords are now thinking about the advantages of security deposit alternatives. If you are experiencing difficulty finding tenants or would like to have more applicants to choose from, presenting an alternative to a security deposit may be a good option for you.

Why Consider Alternatives?

Several renters struggle to save enough money to pay a large security deposit upfront. While most people pay their bills on time and in full each month, the vast majority of Americans still live paycheck to paycheck, making saving money difficult. Assume you usually require a large security deposit to lease your property. In that case, it’s important to keep in mind that doing so will reduce the number of applications you receive and may cause your property to sit vacant for longer.

This is certainly relevant when the economy is trending downward. When this occurs, several landlords find creative ways to overcome these difficulties and get their rentals leased.

Some of the most popular alternatives to the traditional security deposit include:

  • Surety Bonds. A surety bond is an insurance product purchased by a tenant in place of a security deposit. These bonds are usually far less expensive than a security deposit but can help offer landlords protection against monetary damages, which is the main function of a cash security deposit.
  • Pay-Per-Damage Arrangements. A pay-per-damage arrangement is a contractual agreement between a tenant and landlord where the tenant agrees to pay for actual loss or repairs. These contracts are legally binding and normally hold up well in court.
  • Credit Authorization Services. Although a thorough credit and background check is an important part of any tenant screening, some landlords are starting to accept credit authorization as an alternative for a security deposit.
  • Lease Insurance. A relatively fresh alternative in American rental markets is lease insurance or rent guarantee insurance. This insurance guarantees coverage for a landlord in the event the tenant stops paying rent. The tenant is still liable for all unpaid rent, legal fees, and repairs.

Potential Pitfalls

These alternatives have a few potential pitfalls, so it is necessary to consider everything carefully before choosing which path to take. When tenants purchase a surety bond, they won’t get any portion of that back, irrespective of how well they follow the terms of their lease. That can make some tenants hesitate, even if the bond is less money than a security deposit would be.

It may also be more difficult for landlords to collect from the tenant, especially if the claim for loss or damages exceeds any predetermined amounts. And then, there is the turnaround time to consider. A security deposit is usually quick and easy to access, whereas a bond or claim may take longer to process, delaying funds for repairs. If you don’t want to wait, you may have to pay for repairs out of pocket. That may not concern some landlords, but it may create any number of headaches for others.


If you’re finding for approaches to search for better tenants and screen them more efficiently, consider giving Real Property Management of the Rockies a call. Our Windsor property management professionals can assist you in attracting and retaining exceptional tenants and maximize your rental property’s potential. Call us at 970-658-0410 or contact us online.

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