Just as the down payment can be a home buyer's greatest obstacle to home ownership, renters often struggle to come up with the security deposit.

But just as buyers have a growing number of no- and low-money down alternatives, renters also are beginning to find it easier to get in the door.

A growing number of property owners offer new tenants a choice between the traditional security deposit and one of two new alternatives.

Security Bonds

In lieu of a security deposit, property managers and landlords in 24 states can offer new tenants Summit, NJ-based SureDeposit.com's surety bond.

Underwritten by Bankers Insurance Group in St. Petersburg, Fla. the non-refundable bonds cost 17.5 percent of the going security deposit, with a minimum bond of $87.50.

Paid with a tenant's first month's rent, the bonds provide a financial guarantee for the property owner that the property will be returned to its move-in condition after the tenant moves out, while also protecting the owner against rental loss.

The surety company pays for any damages and loss of rent and related expenses, say if the tenant decides to skip out on the lease. The tenant must reimburse the surety company for any costs.

For the tenant, the bond helps reduce move in costs. If residents return their unit in good condition, they are under no further obligation, but they don't get a refund as they would with a security deposit.

The bond money actually goes to the bond issuer not the landlord, so the landlord doesn't get to collect the money and deposit it in an interest bearing account or use it for property upkeep, in both cases, when such a deposit use is permitted by law.

"It's an economic decision. The cost of funds to use our product is much lower than your typical deposit. The longer the resident stays in the apartment, the better the one-time fee looks," said Stuart Litwin, a SureDeposit spokesman.

"It's also a great cash flow boost at a time when they have a lot of moving costs and haven't gotten their previous deposit back," he added.

Deposit Insurance

A second option is deposit insurance.

Irvine, CA-based DepositSaver.com's security deposit insurance deal, available in nearly 24 states.

Chicago-based CNA Insurance underwrites insurance policies property owner buy to protect against damage and other losses. The owner then passes that cost onto tenants for a monthly fee that averages $25. Some property owners opt to charge tenants an annual basis.

The tenant's actual cost can vary from about $8 dollars to hundreds of dollars a month, say for a luxury high-end apartment. The premium is based on the tenant's credit history, whether pets or smoking are involved, the apartment's furnished status, past rental behavior, references and other factors. Theoretically, a long-term tenant could end up paying more on a month-to-month or annual basis than he would have paid for a security deposit.

However, the cost range is also based on the fact that the policy premiums drop each year the apartment remains damage free and there are no rental losses. A long-term tenant might be better off opting for a traditional fixed-amount security deposit. While most rental tenants are short term tenants who move out within a few years, five to 10 years of premium fees could cost a lot more than a typical security deposit.

Still, tenants can benefit from the insurance the same way they benefit from the bond -- they don't have to come up with extra move in costs.

"A divorced mom with two kids who wants a two bedroom apartment but can't come up with the deposit could benefit from this," says DepositSaver.com spokesman Mark DiCamillo.

Landlords get a "no deposit" marketing edge and less paper work.

"If you are a multi-state property owner, it's much easier to deal with than the various regulations for security deposit escrow accounts, interest bearing accounts. If you have properties in eight states it's a headache to deal with all the regulations," DiCamillo said.

A similar insurance-backed security deposit program goes one step further by allowing the property owner to participate in the profits.

With Secure A Lease, the property owner passes onto the tenant premiums ranging from $8 to $25 a months, according to Mike Fitzgerald, an insurance consultant who markets the policy.

Underwritten by San Antonio, TX-based Crosby Bigelow Fitzgerald, Secure A Lease returns a percentage of the premium to the property owner who experiences losses less than agreed-upon levels. Geo. F. Brown & Sons, a Chicago-based wholesale insurance brokerage manages the program.

The property owner can purchase coverage for up to two-times the monthly rent. The insurance company pursues the tenant for paid losses and it will pursue collections in excess of their coverage amount on behalf of the property.

"Secure A Lease performs the same function as the others in that it replaces the security deposit for the resident and provides coverage for skipped rents and tenant-caused damages to the apartment unit," Fitzgerald said.

For more articles by Broderick Perkins, please press here.

Published: March 16, 2001

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.