Security deposits have long been a bane for property managers, who must oversee hundreds of deposits in areas with varying regulations. New technology, however, may help simplify a complex process. Suzette LeSane, vice president of product strategy for Multifamily Housing at Assurant, shares her thoughts on the current U.S. security deposit market and details about Assurant’s latest product and partnership.
What’s happening in the security deposit market?
The security deposit market in the U.S. is estimated at over $50 billion, encompassing more than 50 million rental units. The national average for a security deposit is currently around $1,000. However, for such a robust market, it is continually plagued by the complexities and inefficiencies that come with managing traditional cash security deposits.
Traditional security deposits have a reputation in the industry for creating a significant amount of work for property management staff. Complex regulations, interest and banking expenses, along with resident disputes and legal fees, often make security deposits more of a liability than an asset for many businesses. The process can be complex and costly, especially for managers who oversee large numbers of properties in multiple states with different regulatory requirements.
What are some security deposit alternatives that are available for residents?
The traditional cash security deposit is important for protecting property from damage and unpaid rent; however, there are other options out there for tenants that can cover expenses and help them move in faster. For example, a lease guarantee allows residents to pay less of a deposit, while the property manager has the safety net of a third-party guarantor. At surface level, this sounds like a good option for individuals who may have struggled with securing the funds to pay the security deposit. However, it is not without its limitations, such as resident qualification difficulties, expensive premiums and a lack of understanding of what is actually covered.
To that end, this option primarily covers rent and a portion of eviction fees versus damages. If property is damaged, property owners may not be able to recover the entirety of their expenses and, in all likelihood, will be involved with a stack of paperwork and a great deal of back and forth with the resident.
Another option is to offer surety bonds to qualified residents, which eliminate much of the burden and complexity associated with lease guarantees and cash security deposits. If a renter moves out with unpaid rent and there is difficulty collecting the balance due, building mangers can file a claim against the bond and quickly receive funds.
Surety bonds are also easy for residents to qualify for, and they have affordable premiums and quick claims payouts. Additionally, integration into property management software can be simple and seamless, allowing for easy calculation of the bond amount based on resident deposit requirements.
What should one look for when choosing security deposit technology?
When determining the best technology platform to handle the security deposit process, it is easy to quickly become overwhelmed with options. To help identify which features are the best fit, consider focusing on the following areas:
- Does the platform provide transparency (and a high level of security) throughout the entire process?
- Can residents opt-in easily from any mobile or desktop device?
- Does it have the ability to create escrow accounts and pay interest?
- Does the platform provider offer options for handling both traditional cash security deposits as well as alternatives, such as surety bonds?
- Is there easy access to online dashboard, reports and alerts?
- Does the platform handle resident disputes, if they arise?
Knowing what to look for will not only save time in identifying the right technology platform, it can also help avoid overspending on unnecessary features.
The silver lining here is that technology solutions, such as Deposify, are starting to emerge that have strong potential to help streamline the entire process from move-in to move-out. It is our hope that these solutions will become the gold standard for the industry and thus make the process of renting an apartment easier and more efficient for all parties involved.
Please explain Assurant’s partnership with Deposify.
Deposify is a European fintech company that has developed an industry-first technology solution for managing refundable cash security deposits. As a result of this partnership, Assurant’s property management clients will now have access to a cash security deposit management platform that simplifies the financial and operational process and mitigates the risks associated with traditional cash security deposits. Deposify’s technology platform helps keep property managers compliant with each state’s security deposit laws and regulations by creating joint escrow accounts that pay interest.
Currently, Deposify is only available in the Northeast, but the service is expected to be rolled out nationally in the coming months. The addition of the Deposify solution positions Assurant as the only provider to offer a total deposit solution for property managers that includes both a security deposit management platform as well as a security deposit alternative surety bond product, called FlexDeposit.
How does Deposify differ from a traditional cash security deposit?
Two common problems with the traditional security deposit are: tenants often struggle with securing the funds to pay the deposit and tenants have issues around reimbursement when they leave. According to a recent national poll of renters by Assurant, 49% of respondents had difficulty paying the required security deposit at the start of their rental agreement while 34% had issues receiving their security deposit refund after they moved out.
Deposify’s platform addresses these challenges by simplifying the entire process and reducing the costs associated with managing security deposits. It plays an important role in helping property managers, landlords and owners manage banking, payments and compliance issues as well as resolve disputes with tenants quickly and economically.
Deposify allows property management companies to benefit from a simplified financial and operational process and a reduction in the many risks associated with traditional cash security deposits. At the same time, our deposit alternatives help tenants by providing them with flexible deposit options and lower move-in costs.
How does Assurant’s FlexDeposit help property managers?
FlexDeposit is a next-generation, innovative security deposit alternative that provides renters with lower move-in costs without sacrificing coverage for property managers. By offering the benefits of a surety bond without a claims pool, FlexDeposit gives property managers a simple, easy-to-implement alternative to traditional security deposits that enables them to attract residents who might find a traditional deposit cost-prohibitive. It is the industry’s only deposit solution with integrated collections, so our team of multifamily debt recovery experts will pursue any overages. This reduces collections burdens for property managers.
FlexDeposit has been designed to meet the needs of property managers who want an option that can boost occupancy by reducing resident move-in costs. It is risk-based instead of a fixed fee, which means rates are actually lower for most residents with our bond product. It mitigates rising resident move-out balances by integrating with Assurant Recovery Solutions to minimize administrative hassles and reduce bad debt.
Any final comments on how Assurant helps with these deposits?
Assurant continues to support the multifamily housing market with innovative end-to-end risk management solutions. FlexDeposit, along with Assurant’s recent partnership with Deposify, positions Assurant as the only provider to offer a total deposit solution that both reduces administrative and compliance hassles of managing cash deposits, while offering residents a flexible alternative to traditional deposits that helps PMCs with occupancy concerns.
