Topic: Do you use surety bonds?

Property Manager professionals!

I have a couple questions related to confusing details of "surety bonds", the more I talk to managers, I am finding they are not totally sure of the difference between "surety bonds" and "refundable security deposit". So, questions are:

1. Do you use surety bonds?
2. Do you feel that they give the residents benefits?
If so, what are they?
3. When a resident moves out, how much of the move-out costs are they liable for? (Example, they have a $1000 Surety Bond, *cost at move-in was $175).
4. How much money goes to 3rd party collections with your bonds?
5. Do you find residents with surety bonds leave the unit more damaged than someone with a refundable deposit?
6. What is your overall satisfaction with the product?

Thanks!

I've used surety bonds in the past thru Sure Depost. There isn't really a benefit to the resident, except possibly a cheaper non refundable deposit verses a higher refundable deposit. When someone's moves out with damages the surety bond basically acts as "insurance" for the property. If they paid $175 at move in and the bond covers up to $1000 the bond company will cover up to $1000 to pay you immediately then try to collect from the resident. We solely used bonds and I would say it was about 50% no damages, 50% damages. Hope this info helps!

1. Do you use surety bonds? I have in the past.
2. Do you feel that they give the residents benefits? Yes and No. At an A Class Community, my residents expect to get their deposit back when they move out. At my older properties, the deposits required were higher often due to credit issues, so it worked out for the resident by paying less money upfront.
If so, what are they?
3. When a resident moves out, how much of the move-out costs are they liable for? (Example, they have a $1000 Surety Bond, *cost at move-in was $175). Depends on how they leave the apartment. Sometimes, they would be liable for nothing. The claims get paid out of how much money you have sent in. So at a smaller property, you will have less money in your "pool" to cover damages. At a large property, the money adds up quickly.
4. How much money goes to 3rd party collections with your bonds? I submitted the bond before I sent it to collections.
5. Do you find residents with surety bonds leave the unit more damaged than someone with a refundable deposit? Yes, in my experience.
6. What is your overall satisfaction with the product? I had an influx of employee theft. Employees would steal them because you had to mail them in. I would also find them in files that were forgotten. I prefer refundable deposits. But that's just me.

Thanks Kristin, that great feedback. Crazy about the theft part!!

It was disappointing. But literally happened at 3 different properties. You have to consistently track it and make sure they are being sent in.

Depending on the company you may be able to complete the bond enrollment online. That's how we did it with Sure Deposit.

Wow, I can’t believe you had employees that stole them!
I also have found them in files!
I definitely agree that residents with surety bonds tend to have more damages.

Ana Funsch, managers stole them too. It was crazy.

I used it for years and very beneficial to the new Resident and when collections came around. Not difficult to track. Do it when you process the move out file. The company offers a wonderful website to track things. Less costly to move in. I explain it... Normal S/D is refundable minus any damages. A surety bond is non-refundable and they are responsible for any damages upon move out. 90% of people leave the apt in excellent condition.

I have used Sure Deposit and it is not good for properties that have high turnover cost. The fee that is charged to the resident of $87.50 they get a percentage of that money and the rest goes into a pot. When you file a claim the money comes from your pot of money. It takes a while to build up the pot. if you make a lot of claims you will never get the money. It is a waste and we have cancelled the program on my properties.

I think it would be best to ask the specific company that you are getting bonds through most of these questions. In my experience people don’t tend to take the time to understand their surety bonds policies and procedures. The biggest pro is less cost to move in. Biggest con is that it’s noy refundable, I think they area good option for people in most properties but some properties need to have the security deposit to remind residents that they have something to lose it look forward to depending on how they treat the property.

I'm with BetterNOI, and here are a few answers to your questions, Michael:
2. Residents benefit from paying less cash out of pocket at move-in (a point in time where they are already experiencing a lot of additional expense)
3. Residents remain liable for 100% of damage or unpaid rent; a surety bond does NOT remove them from their obligations per the lease. If a property has a bond pool, they are able to withdraw damages/unpaid rent from the bond pool up to the amount of the bond, however the resident still remains liable.
4. Our company automatically initiates collections on behalf of our clients, and the collections "split" is determined by their collection agreement. The amount collected on behalf of the client is deposited BACK into the client's bond pool, essentially "replenishing" the pool.

Over time, clients are able to manage the amounts in their bond pool, potentially withdrawing funds for other uses when their bond pool amount exceeds their projected needs.

Ask the company what happens 1. When your management company changes 2. What happens when your claims exceed what was paid in?

I've successfully utilized these programs.

The goal of property management is to collect rent. So ask yourself the question -- What is the fastest, quickest and safest way to get residents into apartments and paying rent...!!!

Simple and short, your are outsourcing the security deposit process. The bond companies are great mathematicians to explain the economic impact, which looks good - but you are paying for this service.

Choose a partner that is either integrated or has a sure fire way to not complicate your leasing process. I don't like confusing the residents with pay me for rent pay someone else for something else, etc... Keep in mind most residents do not understand the business -- make it as simple as possible -- get them into the apartment and paying rent quickly...

It really depends on your property. I worked with bonds at a smaller tax credit site. Residents loved the lower up front cost, but rarely understood that it was insurance for us, not for them. They would move out thinking the bond covered the damages rather than thinking they had to pay them. (There was no way of explaining that they still remembered by move out). The funds pool dipped very rapidly, especially with evictions. The company would reimburse the bond amount, then forward that amount to collections under their name and any excess of the bond amount under ours. Only our deal with collections was better than theirs so a larger portion was deducted on their accounts that got paid (and went back into the funds pool). It is not worth the hassle unless it’s a larger property where there aren’t many damages.

We actually covered Surety Bonds in our most recent Screening Research Report! You all can download it here: www.multifamilyinsiders.com/apartment-fo...ning-research-report

The problem with surety bonds is that they are not renter friendly and there is a pool of money that gets quickly depleted when you go to make a claim for a simple turn-cost. On top of depleting the pool and potentially exhausting it completely, the pay-outs are between 30-45 days, so you're left covering the cost until the funds arrive (if they ever do, depending on if the pool has enough money in it). They will also go after the resident to recoup the money there was a claim for, which will lead to negative reviews.

My suggestion: evaluate a true insurance solution like LeaseLock. The resident pays a low monthly fee starting at $19/mo and your units get up to 6x rent protection, excessive damage protection, and they send an automatic $100-200 turn-cost payout within 48 hrs of regaining possession of the unit. This is not a claim the resident is not liable for turn-cost. You're also able to bundle $100k liability insurance through LeaseLock.

Feel free to reach out to me directly if you have any questions.