No Apartment Deposit? Here's How That Can Be a Better Return

When rents keep jumping as they have, it gets harder for many people to afford a new apartment. The flip side is that if tenants can’t rent, multifamily owners and operators can’t lease out property, making it more difficult to bring in the money necessary to run a business.

Security deposits complicate the situation. Depending on the state and city, property owners might require anywhere from $50 to an unlimited amount, though the more common figures seem to be one to two months. The higher the amount, the harder it is for the tenant to make that initial payment.

Some tech companies are looking for ways around the issue, to reduce or eliminate the need for a security deposit. Drop that third month, if you can without heavy risk, and the apparent price of a move-in is lower, making a property more affordable. Plus, there may be no need for escrow accounts, interest reimbursements, or other activity that costs the owners or managers time and money. 

The question is how to let go of security deposits. Companies have walked different paths to get to a solution. One approach that’s been tried the last few years by such companies as Rhino, Jetty National, and LeaseLock is effectively forms of insurance. The renter pays a fee, either up-front or monthly in lieu of a traditional security deposit. The money is non-refundable, so adds to the monthly cost for the renter. But if low enough, that may be enough of a total discount for tenants to afford a place to live.

While most of the focus is on insurance, a start-up out of Israel, Obligo, uses a credit and risk management approach. By using open banking, in which a consumer can give a company access to their information from financial institutions, and artificial intelligence systems, the company requests information from a bank and credit card company. If there is enough potential access to funds that would cover a security deposit, and then secures a billing authorization. The company makes money from monthly fees, which can be paid by the tenant, operator, or a combination of the two.

However, either of the approaches require thought. There are always going to be issues of satisfying local or state regulations (which may or may not approve such alternative mechanisms), the need to manage disputes, increase in monthly costs for tenants, and the potential for buildings to look less financially competitive because there is additional money to pay but no security refund.