This is how you can rent an apartment without a security deposit

·3 min read

The upfront cost of renting an apartment is getting cheaper as landlords in 46 states now accept security deposit insurance instead of one big lump sum cash payment. “It’s a huge amount of money at a time where millennials in particular, you know, don't have it,” Paraag Sarva, Rhino CEO, told Yahoo Finance Live.

Rhino sells security deposit insurance to renters “which costs as low as just a few dollars,” a month, Sarva said. Rhino insures the property owner for damages that might occur and for lost rent. The company said landlords managing 1,000,000 properties accept Rhino insurance instead of a cash upfront security deposit.

“Security deposits are not the most efficient way for someone to protect someone for something that may or may not happen in the future,” Sarva points out.

Investors appear to agree. Rhino just closed a $95 million funding round that values the company at around $500 million. Sarva likes to point out the potential market for security deposit insurance is untapped and huge. “There's 110 million renters today and that's only increasing in scope and scale,” he said.

Pandemic rent revolution

The coronavirus pandemic accelerated a rent reform revolution that started when Cincinnati, Ohio, passed a renter’s choice law in January 2020, one month before the pandemic threw millions of people out of work. The law requires landlords to offer potential renters alternatives in lieu of the traditional cash security deposit. One of those alternatives is security deposit insurance like the product Rhino sells.

“We advocate for renter-friendly legislation like Renter’s Choice because nearly half of Americans are unable to afford a $400 emergency expense and that makes housing affordability one of the most pressing issues in America right now,” Rhino stated in press releases.

Atlanta, Georgia, passed similar legislation in October. Rhino said 10 other states plus cities like Miami and Los Angeles are considering renter’s choice laws as the pandemic squeezes the rental market.

Recent data from S&P Global Market Intelligence shows rent collections falling at multifamily residential real estate investment trusts, REITs, although landlords continue to collect the vast majority of rent due.

S&P Global Market Intelligence analyst Chris Hudgins said the REITs’ ability to collect the vast majority of their rent is clearly a good sign. But Hudgins points out, “REITs typically also own higher-than-average quality assets, so those with lesser-quality apartments might experience different collection rates should their tenants be out of work and not able to fully pay their rent.”

Hudgins went on to say the multifamily sector “typically correlates fairly well with the economy.“ If the economy starts to drop he says, “Tenants try to save money through downsizing to a smaller apartment, living with roommates, or younger tenants might look to move back in with their parents.”

Sarva said, in good times or bad, security deposit insurance helps renters plan their next move. “Our mission is really to give renters everywhere, greater financial, sleep, freedom to plan and enjoy their lives,” he said.

Adam Shapiro is co-anchor of Yahoo Finance Live 3pm to 5pm. Follow him on Twitter @Ajshaps

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