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Security deposit alternatives can be a game-changer—but only if you fully understand how they work, what risks they carry, and how to build your own in-house program legally and profitably.
At PMAssist, we’ve been strong advocates of security deposit waiver programs, and our recent Substack article sparked a flood of follow-up questions from readers. This blog recaps the most critical questions property managers are asking—and why the answers can make or break your program.
🔒 Do Waivers Really Cover Damage?
Yes—but not for the tenant. One of the most common misconceptions is that tenants somehow get “coverage” because they’re paying a monthly non-refundable fee. They don’t. The fees are simply in exchange for not having to pay a traditional up-front deposit. If there’s damage at move-out, the tenant still owes—just like with a regular deposit.
🚫 Is This Considered Insurance?
No. This model doesn’t meet the legal definition of insurance in most states (though Texas PMs, take note: your state requires an insurance-backed product). In a true insurance arrangement, the party paying the fee is the party receiving protection. In this setup, the tenant pays but the landlord benefits—making it categorically different.
🔄 What Happens on Management Termination?
That’s up to you. Some PMs refund collected fees, some require tenants to post a deposit, and others wash their hands of it entirely when an owner terminates mid-lease. The bottom line: it’s your policy to set, but it must be clear in your PMA and lease.
💸 Should You Keep Reserves?
Only if it helps you sleep at night. Many PMs set aside a portion of the monthly waiver revenue in a separate reserve fund, especially when first launching. But most find that the margin is high enough—and the payout rate low enough—that budgeting for payouts as an expense works just fine.
⚖️ Who Gets Paid?
It depends on how your program is structured. At PMAssist, we only issue guarantee payouts when our vendors are used for the repair work. That ensures quality control and avoids turning guarantee funds into open-ended cash handouts. But since owners aren’t paying premiums, you get to define the rules.
💳 How Do You Mitigate Risk at Move-Out?
Simple: collect a credit card. Pre-authorize the card to confirm funds are available, and use it for post-move-out collections when needed. It’s not perfect—but the program is profitable even without those recoveries.
📉 Why Only Offer One Month of Coverage?
Because that’s the market standard. Offering more protection sounds generous, but it creates long-term problems when owners start expecting higher coverage or demand all tenants use the waiver. Keeping things aligned with traditional deposit norms makes the program seamless for everyone involved.
This post is just a preview. The full article answers these questions in depth, with real examples, actionable advice, and a playbook for building your own waiver program that’s compliant, profitable, and operationally smooth.
📖 Read the full article on Substack:
👉 pmassist.substack.com
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