Is Deposit-Free Renting Right For Your Portfolio?

In conversations with property owners and managers we often hear this statement: “I don’t know if deposit-free renting is a fit for our portfolio.” It’s a valid question. When evaluating a new technology solution, deposit-free or otherwise, owners and managers need to fully understand the fit before they see the value. 

There’s a broad list of portfolios that work well with deposit-free renting. For property managers deciding whether to offer this amenity to their residents, here are some guiding questions: 

1. Do your residents have a financial burden that you can help relieve? 

Mid-sized single family portfolios with hundreds of units and a third-party property management company usually are well served by deposit-free renting, according to Alex Patiev, Obligo’s VP of Sales. The monthly rent on these properties can be well in the thousands, and the security deposit requirement is usually substantial — one month’s rent amount or more. 

There’s a real burden on the renter to come up with a lot of money at move-in. A deposit alternative would help solve this problem by giving renters the flexibility to keep their cash and not let moving into a new home break the bank. 

“Additionally, you are competing with other properties in the area and always looking for ways to differentiate yourself and attract more renters. By eliminating deposits, you can market your properties in a more competitive way,” Alex said. 

2. Does your team have operational inefficiencies?

Another reason property managers go deposit-free is to reduce operational friction, a problem that becomes amplified by large portfolio sizes, namely multifamily portfolios with thousands of units. 

Deposit management is made complex by varying state and local regulations. Some states require managing deposits in separate escrow accounts, which means property managers need to go through the arduous process of opening sub-accounts for each renter.

Some jurisdictions require landlords to pay interest on a deposit, which means they have to accurately calculate that interest, or they could be subject to penalties like losing their right to charge damages from a deposit, or paying the renter back multiple times of the deposit amount.  

Refunding deposits is a whole other beast, which we’ve written extensively about before. Ultimately, the deposit management process creates operational overhead and takes away from the real focus of property management companies.

“These complexities and pain points are experienced more vividly by portfolios with 1000+ units — that’s thousands of checks to send back to renters, thousands of deposits to manage and interest calculations to do,” Alex said. 

The easiest way to reduce deposit-related inefficiency is to forgo security deposits and stay protected with Obligo’s deposit-free solution. It streamlines operations so your staff no longer need to grapple with the operational friction, and can focus on providing great service to residents and growing your business. 

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3. Are you concerned about increasing levels of consumer bad debt?

The competitive multifamily rental market can sometimes push property managers to require only a small security deposit (think: a couple hundred bucks). These buildings don’t have “perfect” renters and therefore the small deposit won’t be enough to cover their average damage amount. 

This causes write-offs or bad debt — charges that property managers won’t be able to collect from the renter — and negatively impacts the NOI of the property and the bottom line for the owner. 

If you’re offering a small deposit currently and worried about rising levels of consumer bad debt, you can definitely benefit from Obligo’s deposit-free renting solution. 

How Obligo Qualifies Partners and Renters

As a trusted deposit-free partner, Obligo makes sure that the portfolios we work with are a good fit for our solution. “It has been our goal since day one to build a sustainable and responsible business,” Alex said. “Working with the right partners and renters is a key part of that.” 

A qualified partner for Obligo would be someone who charges their renters in a reasonable way. If a company has a history of charges that are much higher than the industry average, or that it charges 90% of the deposit every time, we can’t sustain their case from a business perspective, since Obligo guarantees the payment of those charges to the properties. 

We qualify renters with the same reasoning. Since Obligo handles collection from renters on behalf of their properties, we only accept renters who have the means to pay us back in case of charges. It’s also important for us to maintain the screening element of a traditional deposit, in order to protect owners. 

Most importantly, Obligo’s mission is to build trust between property owners, managers and renters. Our deposit-free solution adds flexibility and fairness to the rental process, keeps renters accountable and maintains protection for the property side. If you’re interested in learning more, schedule a demo with us!

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