The No. 1 Expense That’s Making It Harder for Renters To Afford Housing
Written by
Dawn Allcot
Edited by
Amber Barkley
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For many people, saving for a down payment for a house feels like a losing battle and a major obstacle to homeownership. But renting can be equally challenging — especially when it comes to gathering the funds for a security deposit.
Typically, a security deposit equals one month’s rent. But in some states, landlords can collect up to three months’ rent as security, according to Bay Property Management Group. Other states have no limits. Plus, there may be other costs, such as a pet deposit, utility deposit or even a key deposit to encourage the safe return of apartment keys when the tenant moves out.
Fortunately, there are creative ways to cover the security deposit and get into an apartment without selling your belongings on Facebook Marketplace — although that’s an option! — or relying on the generosity of friends or family members.
“Cash-strapped renters have alternatives beyond … the bank of Mom and Dad these days,” said Brian Zrimsek, industry principal at the prop-tech firm MRI Software.
Also, make sure you’re aware of these signs you’re overspending on rent.
High-Yield Savings
In a best-case scenario, you’ll have time to accrue funds. Keeping your budget in mind, aim to set aside weekly or monthly increments and deposit it in a high-yield savings account or a CD. If you need $4,000 for rent and the security deposit, for example, you’ll want to set aside at least $330 per month. If your money earns 5% interest, you’ll have $4,067.47 by the end of the year.
If that doesn’t fit your budget, consider ways to increase your earning power or save lump-sum payments, such as a tax refund or bonus at work.
“A well-structured approach would be setting up high-yield savings accounts or certificates of deposit, where you can institute a discipline of accumulating savings over time so that the amount deposited doesn’t place a strain on your finances,” said Sara Levy-Lambert, head of growth at RedAwning, a vacation rental platform.
Consider a Side Gig
Omer Reiner, president of Florida Cash Home Buyers, suggested approaching the situation “just as you would any other scenario when money is needed fairly fast.”
He said, “Consider getting into a ride-share position or delivering groceries and other goods. … Tips can really add up, and you can work as little or as much as you want until you have saved up enough for the move.”
Credit Card or Cash Advance
Some landlords may allow you to use a credit card to pay your security deposit, but they might pass the processing fees, between 1% and 3% of the transaction, on to you.
If your landlord won’t allow you to use a credit card, you can take out a cash advance. This isn’t ideal, since credit card cash advances often have additional fees attached, and interest rates may be higher than the purchase APR.
Seek Local Help
Reiner also suggested checking with local rental nonprofits. “They might be able to help you out with a deposit,” he said.
The Salvation Army’s Housing Now program, for instance, lists rent and deposit assistance amongst its services.
Lease Insurance
Landlords may allow you to forego a security deposit if the landlord offers lease insurance. To find such programs, look for a property advertising “no deposit” or “zero deposit.”
Companies like LeaseLock and LeaseGuard insure the property; the renter makes monthly insurance premium payments instead of an upfront security deposit. If there is damage to the property, the landlord files a claim with the company.
“These are more affordable [than a one-time fee] and help keep people housed,” said Derek Morton, Netgain Property Management owner.
However, unlike paying a security deposit, you won’t get your money back after you move, and you may end up paying more over the long run.
Lease Guarantor
If you have no U.S. credit history, you could end up paying a larger-than-expected security deposit. For those in this situation, a program like theGuarantors, Leap or Insurent Lease Guaranty service might help. The company acts as a co-signer or lease guarantor in exchange for an upfront fee.
Some programs also work for renters with decent to good credit who don’t meet a landlord’s financial requirements.
“Insurent … acts as an institutional guarantor on a renter’s lease. Renters pay a lease guaranty fee to use this service, but the savings can be significant and a far cry from paying the equivalent of several months’ rent upfront,” said Zrimsek of MRI Software, which recently acquired Insurent.
Final Take
Securing the apartment you need might require creativity and persistence. Not all landlords provide security deposit alternatives, but many could be willing to work with you, if you ask.
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