Wife and I are evaluating a rental property and during our DD we found out that the current owner doesn't have any security deposits from the tenants, just these insurance bonds.

From the looks of it, it is a way for tenants to move in without having to pay a deposit and just paying a monthly premium towards an insurance company for this bond.

Our concern is how much back and forth we will do with said insurance company about what is normal wear and tear and what money should be given to us to fix things after they move out.

Has anyone dealt with this type of setup?

Never heard of it. I'd be more concerned with the type of tenant you're picking up, that couldn't afford a deposit. Could cost you a lot more than a deposit.

I'd try to tell the seller that the whole thing makes you nervous and ask for a closing credit equal to the deposit amount.

It's a college town so I'm not shocked about some broke college kids but yea, I've never heard of this either.

Didn't think about that and definitely something we will bring up. Thanks!

BigLeftMiss08 said:

---

Our concern is how much back and forth we will do with said insurance company about what is normal wear and tear and what money should be given to us to fix things after they move out.

Has anyone dealt with this type of setup?

---

This isn't an incremental risk in my opinion to a traditional model. The surety guarantor effectively plays as the arbiter of claims for the 2 parties and keeps both honest. They are your credit exposure too, not the tenant if a claim is filed. It's different but I get why people like this model.

Not in this country but I was an expat elsewhere and my company paid rent and gave surety bonds in lieu of a deposit to my landlord. Landlords job was a massive reinsurance broker for one of the biggest reinsurers in the world so he knew the insurance world very well. He described what my company furnished as vastly superior to a cash deposit: claims all got arbitrated fairly and quickly, your claim exposure is to the insurer not the tenant… and the surety he was given at least potentially covered an obscene amount more than a traditional security deposit. And no… he didn't have to pull on them . We were great tenants!

Surety bonds function similar to insurance but aren't insurance. It's more of a guarantee. You can ask the seller for a discount equal to a security deposit but if they've set this model up with their tenants, the price of the bond probably embedded in the rent therefore if I were the buyer, I'd tell you to pound sand.