Security Deposit Alternatives for Property Managers and Residents
A security deposit alternative lets renters skip the lump-sum deposit at signing. Some vendors call it "deposit-free move-in." The owner still gets protection against damage and unpaid rent, but it comes from somewhere else, usually a surety bond or insurance policy the renter pays a small fee for. This guide covers how each model works, which companies sell them, where the law applies, and what to ask before signing. Related: How to Write a Security Deposit Return Letter + Free Template What is a security deposit alternative? A security deposit alternative is any program that replaces the upfront cash deposit with another way of protecting the owner against damage and unpaid rent. Instead of paying the lump sum, the resident usually pays a nonrefundable fee, either monthly or once. Vendors also sell it as a "deposit replacement" or "deposit-free move-in." The protection comes from one of six places: a surety bond, deposit insurance, lease insurance, a billing authorization against the resident's bank account, an in-house damage waiver, or an installment plan. The installment plan isn't really a replacement. It's the traditional deposit spread over several months, and it's typically the only option where the resident gets their money back. Fannie Mae's research on renter challenges names affording upfront costs as a leading barrier. The security deposit is usually the largest of those costs, often a full month's rent charged on top of the first month's rent. An applicant who can pay the rent but cannot produce first month plus deposit shows up in your numbers as an approval that goes quiet. Types of security deposit alternatives Security deposit alternatives run on insurance, surety bonds, ACH authorization, or an in-house program the property manager funds itself. None is a one-size-fits-all strategy. The right one depends on portfolio size, how much risk you are willing to keep, and state and local law. Model How it works Who funds a claim Resident cost Refundable Surety bond Resident buys a bond that guarantees owner recovery Surety pays the owner, then bills the resident One-time or annual premium No Deposit insurance Insurer covers the owner directly Insurer pays and absorbs the loss Monthly or one-time premium No Lease insurance Coverage attaches to the lease, not the resident Insurer pays under the property's policy Monthly fee No ACH authorization Resident pre-authorizes a charge against a verified account Nobody. You charge the authorized account Monthly or one-time fee No Damage waiver Owner drops the deposit for a monthly charge The owner, out of its own pocket Monthly charge No Installment plan The deposit itself, paid over several months Same as a traditional deposit Full deposit amount Yes Surety bond The surety bond model isn't new, but venture-backed vendors modernized the enrollment experience. Rhino alone raised $95 million in a single 2021 round, putting the model in front of single-family operators. Surety bonds are agreements between two parties managed by a third party, known as the surety. In the case of property management, the contract is between you as the property manager and the resident. It states that the resident agrees not to damage the property and agrees to cover damages should they be responsible. In case of a contract breach at the end of the lease, the surety pays out the sum required to the property manager, then bills the resident the cost of the damages. Surety bonds attempt to incentivize the resident to take care of the property, which is more than a pure insurance program will do, but there's not a definitive set of evidence yet that this is highly effective. It's still a challenge to educate some residents that this isn't an installment plan or insurance product. In many cases, that falls on the property management team. Another concern with the surety bond model is the surety company’s post-move-out collection results. After the surety pays the claim to the property manager, the cost of the damages due to the surety from the resident may never get collected. This leaves the model with several potential downstream adjustments: Surety companies figure out how to collect a higher percentage, increase monthly pricing, or expand into more profitable products Less reliable claims payouts Layoffs or other financial controls More investment was requested for more runway The jury is still out on whether surety bonds have the unit economics to win the category. Deposit insurance Deposit insurance, sometimes sold as pure insurance, is what it sounds like. Instead of a deposit covering potential damage, the resident buys a policy from an insurer. The resident pays a premium, and at move-out the policy covers property damage up to a set amount. It is the friendliest model for the resident, who pays the premium and typically carries no financial responsibility for damage after move-out. That is also the flaw. Nothing in the structure gives the resident a reason to look after the home, since they could owe nothing extra for damage they cause. Insurers price that in, which pushes premiums up and makes pure insurance a weaker tool for holding total cost down. Lease insurance Lease insurance moves the coverage off the resident and onto the lease. The property owner buys a policy, the coverage travels with the unit rather than the person, and the insurer pays the owner directly when unpaid rent or damage comes in. The resident pays a monthly fee and gets nothing back. Because the property holds the policy, enrollment is close to automatic, and there is no per-resident underwriting to manage. The trade is that coverage limits are set by the plan the property bought, not by the deposit you would have charged on a given home, so a high-rent house can end up carrying the same limit as a low-rent one. ACH authorization The ACH (Automatic Clearing House) authorization is a popular alternative. It mirrors the method hotels have used for years to compensate for incidentals and applies it to long-term rentals. Residents permit a financial institution to directly draft money up to a certain amount to cover damages and draw from your bank account. The ACH authorization does check the box of incentivizing proper treatment of the home. So far, this method seems to be getting the best results in post-move-out collections. A fair critique is that not 100% of residents qualify for this, and the ones that don't must pay a traditional deposit, so it isn’t a complete solution in some people’s minds. Damage waiver The resident pays a monthly fee and the owner drops the deposit requirement. Todd Ortscheid, CEO of Revolution Rental Management, built one and described the choice he puts to applicants on Second Nature's Triple Win podcast: pay the deposit your application score calls for, or pay a monthly waiver fee that buys the privilege of not paying a deposit upfront. A waiver is neither insurance nor a refundable installment toward a deposit, and that is the part attorneys argue about. Property managers and their counsel disagree on compliance exposure, and many operators cannot get comfortable holding the financial liability themselves. If you are weighing an in-house waiver against a vendor program, here are three questions to consider: How much difference does scale make now, and how much later? How large is the skill or expertise gap, now and later? Is building this the best use of your time? Installment plan An installment plan is the deposit itself, typically collected over three to six months instead of all at once. The resident still pays the full amount and still gets it back at move-out, minus lawful deductions. That makes it the conservative option and the only one that keeps refundability intact, which is why the cities writing regulations keep landing on it. It also keeps every obligation you already had. The escrow account stays, the interest and itemization rules still apply, and you carry the risk that a resident stops paying halfway through the schedule. Security deposit alternative companies and what they offer The traditional deposit is the instrument every alternative is measured against. One payment, usually equal to a month's rent, held against unpaid rent or damage beyond normal wear and tear. It costs the resident nothing monthly and comes back in full to a resident who leaves the home in good shape. It also generates no revenue for the investor and none of the flexibility the newer products sell. Model: Traditional deposit Up-front cost to resident: The full established cash deposit Monthly cost to resident: None, if they paid the full deposit at move-in Unpaid rent and damage coverage: Equal to the deposit held Revenue share with property investor: None Payments refundable to resident: Yes Resident held accountable for funds: Not applicable, you already hold the money Here are 8 companies offering security deposit replacement options. Disclaimer: Any reference to specific companies, products, or services is for illustrative and informational purposes only and does not constitute an endorsement, recommendation, or financial advice. Company Model Who funds a claim Rhino + Jetty Deposit insurance and surety bond Insurer or surety TheGuarantors Surety bond, lease guarantee, renters insurance Varies by product Obligo Billing authorization Nobody. You charge the resident. LeaseLock Lease insurance Insurer Qira Cash-backed deposit alternative Qira SureDeposit Surety bond Surety, then bills the resident ePremium eDeposit Surety-style, one-time fee Program, up to the deposit amount Leap Rent guaranty and co-sign Policy pays the operator Rhino + Jetty The two companies that built this category merged in February 2025. The combined business now sells renters insurance, guarantor coverage, and other products alongside the deposit line. Rhino is one of three providers on New York City's pre-qualified list. Model: Deposit insurance and surety bond Up-front cost to resident: None on the insurance product; premium quoted per applicant Monthly cost to resident: Variable, quoted against rent, deposit size, and credit Unpaid rent and damage coverage: Set against the deposit the property would otherwise charge Revenue share with property investor: Available at large portfolio scale; confirm the unit threshold in your quote Payments refundable to resident: No Resident held accountable for funds: Yes under the bond, though Rhino says it does not always pursue TheGuarantors Three products, and only one replaces a deposit. The surety bond does. The lease guarantee backs the rent, so an under-qualified applicant can get approved; it covers income, not move-in costs. It also sells renters insurance. Ask which product a rep is quoting. Model: Surety bond, plus lease guarantee and renters insurance Up-front cost to resident: One-time premium, quoted as a share of a month's rent Monthly cost to resident: None on the bond product Unpaid rent and damage coverage: Equal to the established cash deposit Revenue share with property investor: Not published Payments refundable to resident: No Resident held accountable for funds: Yes Obligo A billing authorization rather than a bond or a policy. Residents verify their bank account and income, then authorize a charge against that account or a card. When damage happens, you charge that account directly. Obligo's FAQ confirms there is no claims process, removing paperwork and shifting the risk. Recovery now depends on the money being in the resident's account. Model: Billing authorization Up-front cost to resident: First year's fee, variable Monthly cost to resident: None Unpaid rent and damage coverage: Equal to the established cash deposit Revenue share with property investor: Not published Payments refundable to resident: No Resident held accountable for funds: Yes, you draw directly on the authorized account LeaseLock Lease insurance, sold as Zero Deposit. Coverage attaches to the lease, not the resident, and the insurer pays the owner. LeaseLock's FAQ lists unpaid rent, damage, pet damage, and eviction costs as covered. Residents pay monthly and get nothing back. Model: Lease insurance Up-front cost to resident: None Monthly cost to resident: Monthly fee set by the plan the property buys Unpaid rent and damage coverage: Plan limit, covering unpaid rent, damage, pet damage, and eviction costs Revenue share with property investor: Not published Payments refundable to resident: No Resident held accountable for funds: Yes in the contract, though LeaseLock says it does not pursue Qira Cash-backed instead of bond-backed. Qira funds claims itself. On New York City's pre-qualified list, it advertises up to twice the deposit amount in coverage, 48-hour claims processing, and no cost to properties. The same list carries Rhino and an affordable housing program from the Insurance Office of America. Model: Cash-backed deposit alternative Up-front cost to resident: Quoted per portfolio Monthly cost to resident: Quoted per portfolio Unpaid rent and damage coverage: Up to twice the deposit amount, per its New York City listing Revenue share with property investor: None advertised; the program lists no cost to properties Payments refundable to resident: No Resident held accountable for funds: Yes SureDeposit and ePremium eDeposit Two older surety-style programs, both built for apartments. SureDeposit pays the owner, then bills the resident. Assurant acquired it in 2011 and now sells FlexDeposit, a surety bond program with collections built in, so ask which of the two you are being quoted. Model: Surety bond Up-front cost to resident: One-time premium, quoted as a share of a month's rent Monthly cost to resident: None Unpaid rent and damage coverage: Equal to the established cash deposit Revenue share with property investor: Not published Payments refundable to resident: No Resident held accountable for funds: Yes, collections are built into FlexDeposit ePremium's eDeposit charges a one-time fee and pays claims up to the deposit amount, typically in about 13 business days. Residents who buy ePremium renters insurance are enrolled automatically. That auto-enrollment saves a step and puts two risk decisions in one contract, so price and review them separately. Model: Surety-style program, one-time fee Up-front cost to resident: One-time fee Monthly cost to resident: None Unpaid rent and damage coverage: Up to the property's deposit amount, paid in about 13 business days Revenue share with property investor: Not published Payments refundable to resident: No Resident held accountable for funds: Yes Leap A guarantor, not a deposit replacement. The renter buys a policy naming the operator as beneficiary, and it covers rent default. Leap gets listed alongside deposit alternatives constantly, which is how the two get confused. Work out which problem you have before the sales call. Model: Rent guaranty and co-sign, not a deposit replacement Up-front cost to resident: Policy premium, quoted per applicant Monthly cost to resident: Varies by policy Unpaid rent and damage coverage: Rent default only, under a policy naming the operator as beneficiary Revenue share with property investor: Not published Payments refundable to resident: No Resident held accountable for funds: Yes Where security deposit alternatives are required by law Jurisdiction In effect Applies to What must be offered Enforcement Cincinnati April 2020 More than 25 units Rental security insurance, a deposit capped at half of one month's rent, or the full deposit in six or more installments No penalty in the ordinance Columbus 2021 Five or more units Full deposit at signing, three installments, or six installments. Insurance products excluded Written notice required Philadelphia June 2025 Three or more units, deposit above one month's rent Part of the deposit in three equal installments City ordinance New York City Ongoing City and Housing Development Corporation developments Providers from a pre-qualified list, now closed Program terms Cincinnati was the first city in the country to pass one of these ordinances, in early 2020. A legal review at the time flagged three key points: The ordinance carries no penalties, so tenants keep only the remedies already in the code. It applies to renewals and new leases. Insurance coverage per claim is fixed at the exact amount of the deposit you would otherwise have charged. New York City runs a list, not a mandate. The city's housing agencies keep a pre-qualified list of providers for City-backed developments, naming three. That list is closed to new submissions, and providers already on it stay on it. Disclaimer: The municipal laws and regulations discussed above are subject to change. This information is provided for reference only and will not be updated as part of this article. What happened to renters choice laws? Dozens of cities and states looked at Renters Choice bills in 2020 and 2021. Almost none passed, and the reason could temper how much weight you give the idea that a mandate is coming to your market. Shelterforce reported in 2020 that some products sold as renter's insurance are surety bonds rather than insurance, so residents never get the money back and remain liable for claims. The National Housing Law Project issued 2022 guidance urging that any such law give tenants the same protections against the provider they would have had against a landlord. Rhino had lobbied for these bills and counted Cincinnati as its first win. Columbus heard public opposition to an insurance-only version and passed an installments-only ordinance. Baltimore's council passed one, the mayor vetoed it over the insurance provision, and the city funded grants instead. Rhino's Renters Choice advocacy site went offline during 2025. Two things follow: It’s unlikely that a legal requirement is coming to most markets soon, so a program has to earn its place on operations alone. Where laws do pass, the permitted options could be moving toward installment plans, the one model that keeps the deposit refundable. Advantages of security deposit alternatives The idea is to lower the barrier for a resident who doesn't want to hand over a large lump sum, and to help the investor by filling the home faster. That is where the real gain shows up. Avoid large deposits for residents The obvious win, and the one that surprises operators most, is who takes the offer. Todd Ortscheid, CEO of Revolution Rental Management, built a waiver program in-house and talked about it on Second Nature's Triple Win podcast in February 2022. He expected the option to attract weak applicants. "When I first started doing this, my assumption was the only people who are going to take this are the people with the worst scores," he said. His first signup had a credit score above 800 and millions in the bank. Asked why he took it, the man told him, "I would rather pay monthly than give you a big chunk of my money." A single account settles nothing, and it should still make you test the assumption that only weak applicants want the option. Get more options Most of these programs are straightforward to administer once set up, and they give the resident a real choice at signing, including how they pay. Ortscheid reported that around 70% of his applicants were selecting the waiver over the deposit as of that 2022 conversation. Choice at move-in is worth something on its own. A resident who picks their terms starts the tenancy feeling in control. Reduce vacancies This is where the investor case sits, and given your fiduciary duty to the owner, an investor win is usually your win too. A deposit alternative is something you can advertise in a listing, and it differentiates a home for the sizable group of applicants who are cash-constrained rather than credit-constrained. Revolution Rental Management averaged roughly ten days on market while running its waiver program. Vacancy is expensive in single-family management. By our own estimate, a full turnover runs one and a half to two times the monthly rent once you count marketing, make-ready, staff time, and lease processing. A stalled approval costs far more than just one empty month suggests. The market helps. Rental vacancy hit 7.3% in the second quarter of 2026 per Census Bureau data, up from 7.0% a year earlier. Residents have more choices than they did two years ago, and move-in cost is one of the few things you control. Bond and insurance models also remove deposit admin. No escrow account, no interest tracking, no itemization deadlines. In exchange, you take on the program itself, from claims paperwork to coverage limits. Whether that trade helps depends on the vendor. A software-only program hands you a dashboard and leaves the claims work on your desk. Get fewer damage claims at move-out Some property managers say dropping the deposit reduced damage claims at move-out, which is the opposite of what most operators would predict. Brian Birdy of Birdy Properties described the shift in resident thinking on the same Triple Win episode. "The majority of people leaving believe you're not going to give me my money back, and since I'm not getting my money back... I'm really not going to clean up too well because if I do all that work, you're still going to keep my money anyway. Well, now you were nice enough to let me move in and not have to give you all this money. Everything has gone well, and now it's time for me to leave. And I can recognize that if I don't leave the property in good shape, I'm going to have to pay for it." Birdy reported a drop in overall move-out claims and a sharp fall in turnover cost to the owner after moving away from deposits. Treat that as one operator's experience, not an industry finding, and watch your own turnover numbers before you assume it transfers. Disadvantages of security deposit alternatives These programs also cost somebody something, usually the resident. Before signing with any provider, get clear answers on what happens when a resident breaks the lease early, what is owed after move-out and who pays it, how a charge gets disputed, and what the fee obligation looks like month to month. Payments are not refundable Refundability typically disappears under every model except the installment plan. A resident who keeps a home spotless for three years might get nothing back, whereas a deposit would have been returned in full. The National Consumer Law Center's 2026 report found security deposit alternatives led to higher total resident costs and weaker protections, plus disclosure and dispute problems. One point is worth sitting with. Deposit statutes govern how landlords hold, itemize, and return deposits. A product that isn't legally a deposit can sit outside those rules, and NCLC notes some landlords choose these products for that reason. How you explain the program carries legal weight. A leasing agent should be able to say in plain words what the resident pays, whether any of it comes back, and who comes after them if a claim runs past the coverage. Disputes may be harder to resolve A deposit argument is between you and the resident. Add a provider, and you add a second agreement at signing and a second claims process at move-out. A resident who disputes a charge can then bounce between you and the vendor without getting an answer, and the resident may not be held accountable in the way you and the investor need. Ask how disputes get handled before you need to. Alternatives do not save anyone money Some products market themselves on dollars saved. What they change is timing. The money leaves the resident's account later, and under most models more of it leaves in total than a refundable deposit would have cost. That could be a fair trade for a resident who needs cash at move-in and knows what they are buying. It is a problem when the leasing conversation implies otherwise. Deposit alternatives do not replace renters insurance These two decisions get bundled constantly, and they cover different losses. A deposit alternative covers damage and unpaid rent up to the deposit amount, then chases recovery. It carries nothing else. No personal liability coverage No pet or dog-bite liability No loss of rental income Nothing for the resident's own belongings The coverage questions property managers ask most sit on the insurance side of that line. Swap the deposit for a surety bond, call coverage settled, and the uninsured gap gets wider. The deposit was at least real money sitting in an account. The bond is a promise to chase it later. Questions to ask a security deposit alternative provider Keep in mind that no alternative model guarantees full claim recovery. A program advertising up to $5,000 in coverage operates differently that a standard $2,500 cash deposit, particularly if your property’s typical turnover damages surpass both of those figures. Six questions tell you what you're buying: Which of the six models is this, and who funds a claim? What is the coverage limit per unit, and how does it compare to your average turnover cost? Who files the claim, what documentation is needed, and how many business days until payout? What does the resident pay, on what schedule, and is any of it refundable? What happens when a claim exceeds the limit, and does the shortfall land on the owner? If the resident gets billed for the balance, who does the billing and what do they receive in writing? If a provider cannot answer all six in plain language, keep looking. Does a deposit alternative produce a Triple Win? We run every program through one test. Does the resident win, does the property manager win, and does the investor win? We believe that deposit alternatives pass the first two easily. The third depends on which model you pick. The resident wins. Cash stays in their pocket when they need it most. That's largely why adoption keeps climbing. You win. More approved applicants actually sign, and the escrow account and interest tracking go away. The investor might not. Faster leasing helps the return. Coverage limits below your average turnover costs are inadequate, and damage waivers that leave owners paying for repairs are worse than standard deposits. Settle the investor question first, and settle it with the owner rather than with the vendor. Where this fits in your deposit strategy The deposit choice sits alongside state-law compliance, deposit accounting, and how you handle move-out disputes. Our complete guide to security deposits covers deposit trends, state-law pitfalls, and the deposit alternative landscape at portfolio level. Meanwhile, Second Nature handles the related operational side via Resident Onboarding and the Resident Benefits Package. Credit building. On-time rent reported to all three major bureaus, worth a 64-point average score gain after 12 months, which hands residents something a deposit never did. Resident Onboarding. Walks residents through their obligations before move-in, since only 37% of them finish reading the lease. Move-in is the highest-leverage moment in the resident relationship. Per AppFolio's 2025 Renter Preferences Report, residents happy with move-in are 86% more likely to recommend their property manager and 29% more likely to renew. Settle the model before you shortlist vendors. Once you know whether you want third-party risk transfer, a self-insured waiver, or a refundable installment plan, the list gets short and the six questions do the rest. Ready to evolve the rest of your resident experience? Get a demo.
October 27, 2026
Read more
