TREND - PM companies offering financial assistance for security deposit down payments

[Phillip Austin]

As a professional property manager, I'm coming across an interesting trend related to institutions providing financial assistance for tenants who have trouble paying their security deposit and I would love to hear feedback from the BP community.

Large PM companies have begun partnering with financial institutions, such as Rhino Insurance, to help tenants who struggle with paying their security deposit. Here's how it works:

If their deposit is $1,500, they can either choose to pay the SD in full or elect to take out what is essentially a loan with Rhino Insurance and only pay $25 per month ($20 goes to Rhino and the remaining $5 goes to the PM company) toward their $1,500 SD. If the tenant becomes delinquent and stops paying rent, Rhino will insure their full $1,500 SD plus an additional nominal amount to offset the losses incurred by the landlord. For a $1,500 SD, they would most likely ensure an amount close to $2,700.

From my perspective, we should never move in a tenant who cannot afford their security deposit. We should also never have a revenue stream and make money off a tenant's security deposit. Lastly, if the tenant does become delinquent and we have to file a claim with Rhino Insurance to collect their deposit, we're adding to the financial woes of that tenant and putting them into an even worse financial position when they wouldn't have qualified in the first place.

Thoughts? Is this is a positive trend? Do you have any personal experience with these types of programs? Is this a predatory practice by PMs? Should we be allowed to make money off a tenant's SD?

[Nathan Gesner]

Quote from @Phillip Austin:

There are two alternatives to a security deposit, which I speak about in my book. Rhino is an insurance program, and I do not recommend them. Rhino makes money from the premiums paid. When they pay out a claim, the money comes out of their pocket. This increases the likelihood that they will reduce or reject the claim. I know many property managers that no longer use Rhino because they refuse to pay out.

The other option is a surety bond. The tenant pays a monthly premium and keeps an active bank account and credit card on file. When the landlord/PM files a claim, the money is pulled from the tenants bank account or charged to their card. Because the payment is coming from the tenant, and not the surety bond provider, claims are always processed without a fight.

If you are interested in considering a surety bond program, I recommend Obligo.