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Sep Tue 2, 2014, 6:51 PM

Are Security deposits that Secure?


There has been an idea for some time floating around the professional landlord scene that security deposits may not be all that useful. A few hundred pounds in the bank isn’t going to cover any serious damages or unpaid rent by tenants and, in some ways, you restrict your target market to those who have that kind of money lying around. So should you think about forgoing deposits?

Preventing a No-Show

Though the total deposit isn’t always that much, tenants will usually stick around for the receipt of it. It’s an incentive to get your tenants to leave the property in a good state and it will cover those petty cleaning bills which so many landlords leave tenants to stump up. Equally, even if a tenant is in arrears, they’re likely to want to claim their deposit back because it’s cash as opposed to credit. Don’t underestimate the power that a deposit has.

Finding an Alternative

Of course, simply letting your tenants loose with no collateral is commercial suicide, so most landlords will take the names and details of guarantors in lieu of a deposit. This is fine and may even be advised in the case of students or low income tenants but you need to think about liquidity. A cash deposit is available immediately whereas tracking down guarantors could take months.

The Tools of the Trade

Even if you go double-Dutch and take a deposit and a guarantor, there’s still no guarantee that you’ll be able to reclaim arrears. The only sure fire way to do this is to take out rent guarantee insurance and you may well find that some policy wordings request you to use tenant’s security deposits before claiming on insurance.

There are different ways of keeping your tenants in check financially, some of them obviously more successful than others. Though landlords are starting to go without the security deposit, the benefits are only very slight compared to the risks. Keep a hold of your rent guarantee insurance and make sure you’re covered; it’s the only way to actually mitigate against lost income.

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