An Alternative to Security Deposits

With undergraduate enrollment expected to grow from 16.4 million students in 2008 to 19 million by 2019 (according to the National Center for Education Statistics), the need for off-campus housing will continue to grow as well.

It’s no secret that Millenials and their parents are more sophisticated buyers and indeed, expect more from their housing options than ever before. But they want more than just broadband and onsite social events. This generation of students and their parents who are footing the bills are also looking for affordability, still the primary decision-making factor in housing choice for a majority of them. This is especially true for graduate students who may no longer have their parents’ financial support.

Add to this the fact that college students are apt to change housing every year, and off-campus property companies face even more pressure to not only attract residents but give them something worth staying on for beyond final exams.

This puts owners and property managers of off-campus university housing in a challenging position — offer the little luxuries at competitive rates that help them compete for residents who have more and better housing options than ever before, and at the same time, manage expenses as well as the potential for bad debt that chips away further at their NOI.

Security Deposit Alternatives Meet Marketing and Risk Management Needs

Owners and apartment managers of more than 1.5 million units nationwide now offer SureDeposit’s security deposit alternative as a leasing and financial risk management tool. SureDeposit’s surety bond allows students to move into an apartment at a significantly reduced cost, while affording the property manager the assurance that he would be protected against financial losses due to damages or skipped rent.

How does SureDeposit work?  At lease signing, the student is offered a choice between paying a refundable security deposit to the property company or a one-time, non-refundable surety bond premium to SureDeposit. The bond premium typically costs less than one-fifth the amount of the traditional deposit and affords the property management company similar coverage.  For example, the minimum coverage amount of $500 for the community costs the resident $87.50 for the surety bond premium.

If, at the end of the lease term, the resident meets his rental obligations and returns the apartment in good condition, he moves out without any further obligation. If the apartment incurs physical damages beyond normal wear-and-tear or monetary damages due to skipped rent at move-out, the property company submits a claim to the surety for payment. SureDeposit then collects reimbursement for the claim from the student (saving the owners and managers of off-campus housing valuable human resources and administrative time, in the process) who, under the terms of the bond, remains fully liable for his lease obligations. These collections by the surety accrue to the benefit of the property owner/ manager, giving property owners and managers another means to mitigate bad debt.

Coverage purchased with one premium payment at lease signing applies for the life of a resident’s lease and follows the resident to any participating apartment within the property company’s portfolio, even after graduation.

The benefits of the security deposit alternative to property companies can be substantial. It discourages renters from failing to pay their rent or leaving their units in poor condition when they move out. This is because the renter remains fully liable for his lease obligations under the terms of the surety bond.

In addition, the student’s lower up-front costs required to move into a new apartment make it easier to close the sale.  When you consider the costs of setting up a new apartment plus the costs typically associated with the start of a new semester such as books, tuition and activities fees, being able to offer the security deposit alternative with lower cost option to students and their parents has real marketing appeal.

But arguably, the most dramatic benefit  can be found in its enhanced level of protection and the subsequent and significant impact on a property’s bottom line, particularly in markets where requiring full cash deposits puts a property at a competitive disadvantage.

Worth noting, since the security deposit alternative premium is non-refundable, it precludes the hassle of having to return security deposit checks at the end of the lease. Also, since the property company can offer the bonds “per bed,” there is no need to deal with divvying up a cash deposit among roommates at the end of the lease term or in the event of roommate changes.

While college students are always up for the latest and greatest amenities or a better deal, SureDeposit’s surety bond earns high marks for helping students and their parents keep more money in their pockets when renting an apartment near their college campus, as well as for providing property managers with a powerful marketing and risk management tool in competitive times.

— Richard Schreiber is president of SureDeposit, the nation’s leading provider of security deposit alternatives to the multifamily industry..