Security deposits have long been a norm in the rental world. Tenants are expected to put down as much as an entire month’s rent as insurance against potential damages. Then, when they move out, properties are assessed and the security deposit, or a portion thereof, is supposed to be returned based on the condition of the apartment or home.
On the whole, landlords and property managers don’t have a great reputation for returning security deposits. In Texas, the maximum time a landlord can hold a security deposit after moving out is 30 days, but many tenants’ despair of ever getting them back. Instead, they write off their security deposits as a lost cause. When they’re returned, it can feel more like a windfall than a normal part of the rental experience. Meanwhile, less-than-ethical landlords pad their bank accounts with these payments – but change may be on the horizon.
Recently, several cities have passed laws changing how landlords are expected to handle security deposits, including banning them altogether. That’s because, given that tenants are often expected to provide first month, last month, and security, security deposits have come to be viewed as a barrier to affordable housing. Given the ongoing housing crisis, some think it’s time to do away with this fee. What does that mean for Houston landlords?
Though cities like Cincinnati may have developed new laws around security deposits, obviously Houston area landlords aren’t obligated to make any changes unless the law also changes here. That means that for now, Houston landlords should simply follow best practices for security deposits, such as issuing a clear move out letter, outlining everything expected of the tenant, promptly inspecting the property, and returning any owed portion of the security deposit, as long as they have been given a forwarding address.
Security deposit management and return is a straightforward process, yet because of how many tenants have been treated in the past, many are surprised and grateful when their deposit is returned. Simply put, handling security deposits correctly is a great way to boost your reputation as a landlord.
Though Texas landlords aren’t required to offer alternative security deposit arrangements, the move to change the conventional structure should be considered an opportunity to evaluate how you use these funds. In Cincinnati, for example, tenants now have three alternatives to the traditional lump sum deposit. First, they can pay the security deposit in installments over six months; they can pay a reduced security deposit equal to a maximum of half the first month’s rent; or they can take out rental security insurance. Tenants are allowed to opt for an alternative deposit, but the landlord gets to decide which alternative to offer.
Would such a policy be suitable to your property? Only you as a landlord can answer that question, but especially if you rent to a lower income community, it’s worth considering. A security deposit is often an undue hardship for these tenants and may even contribute to the ongoing crisis of homelessness in many cities. If you’re ultimately just going to return the security deposit, which should typically be the case, then that added initial cost is benefitting tenants without doing much to serve your financial needs.
One reason Houston might want to follow Cincinnati’s lead in offering tenants an alternative deposit structure is that, in terms of housing availability and quality of life, the cities are considered quite similar. In a WalletHub analysis of 180 rental markets, Cincinnati ranked 126th overall, while Houston ranked 135th, ranking slightly better than Cincinnati on housing cost and availability, but worse on quality of life.
What do these calculations mean regarding their respective cities? Essentially, while both markets may seem superficially appealing – consider Houston’s thriving cultural life – what they offer, relative to what they cost doesn’t stack up. Simply eliminating or minimizing the expense of paying a security deposit could improve Houston’s appeal to renters.
Beyond making your properties more appealing to renters, why would landlords and property managers consider offering alternatives to the conventional security deposit? There are several key reasons. First, alternative deposits largely benefit everyone; for example, they reduce move-in costs for tenants, while still providing protection against property damage. Some deposit alternatives, like monthly insurance, are even non-refundable, making them more profitable for landlords. That’s a notable difference, and yet it still succeeds in making housing more accessible to a wider group of people.
There’s also a thriving industry supporting alternatives to the traditional security deposit. Startups like Rhino, Jetty, and The Guarantors charge a monthly insurance fee, then pay out to landlords or property managers if the property is damaged. The existence of such startups should also be viewed as an indicator that these alternative arrangements are about to become more popular. As soon as an industry emerges around, it becomes much more likely that the practice the field supports will flourish.
As your property management firm, we can’t decide whether an alternative deposit structure is right for you, but we can support you in making such decisions and help facilitate its application. With over forty years of Houston area property management, we intimately understand the needs of this community and how to appeal to the tenant population. Simply put, our connection to Houston gives your properties a competitive advantage.
If you’re a Houston landlord hoping to expand and streamline your business, you need a property management team on your side – but you can’t rely on just any management group. For stand out performance you can trust, call on Green Residential. We’re a full-service property management company, offering everything from tenant leasing to maintenance and eviction services. Whether you manage short-term or long-term properties, a handful of private homes or a number of apartment buildings, we have the skills and experience to help.
Contact Green Residential today to learn more about our services and find out how we can support your rental management needs. With specialist support covering everything from marketing to accounting, we’ll take care of all the details so that you don’t have to.
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