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Could Ditching Security Deposits Increase Rental Costs?

Nixing security deposits is a new rental trend, but some analysts think that efforts to encode it into law could wind up costing renters more money in the long run.

NEW YORK – A big trend in rentals has been to eliminate security deposits that require tenants to make a large payment upfront. But some housing analysts say that efforts to encode the practice into law could wind up costing renters more money in the long run.

National Real Estate Investors Association COO Charles Tassell told Fox Business that several efforts by legislators around the country to do away with security deposits through “misguided feel-good” laws could have long-term implications on renters.

“Either the rents go up or the standards for renting go up, which means people on the margins are less likely to be able to rent,” Tassell says. “In short, what [owners] are going to do is … protect their assets.”

Lawmakers across the country increasingly eye security deposits. In Cincinnati, for example, a new law took effect that gives renters an option to pay with a cash alternative, split payments over six months or opt for security deposit insurance.

Landlords find alternatives to security deposits

Security deposit insurance may appeal to some renters because of their low initial payments, for example, but Tassell cautions against it.

Renters “don’t want to pay $500 up front, so they pay $3, $5, $10 every month,” he says. “And when they move out, the company is going to come back and say, ‘Hey, you need to pay for the $300 of damages.’”

Source: “Real Estate Ditching Security Deposits Can Drive Up Housing Costs: National Real Estate Investors COO,” FOX Business (Jan. 21, 2020)

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