In reference to a great book that I read about 20 years ago – Who Moved My Cheese by Spencer Johnson, M.D. – “The quicker you let go of old cheese, the sooner you find new cheese”! To real estate agents, investors, and managers, “Cheese” represents money, dinero, bucks, duckets, or if you prefer, the almighty dollar. Having an acute awareness of one’s financial situation is pivotal to successfully running a real estate business. Additionally, having an intimate understanding of one’s investment landscape is equally as important!
Obligatory disclaimer – I am a real estate broker and investor who runs RAW Property Management full time. I am neither an accountant nor an attorney. Anything you read below is my opinion and interpretation of the facts, rather than grounds for legal or accounting advice.
Speaking of change in the landscape of real estate cheese, The City of Cincinnati Council has decided to write new regulations into law on security deposits for rental apartments and houses. The determining factors that helped push this legislation into law are the facts that residential tenants in the area already contribute in excess of 30% of their monthly income to housing expenses, and there have been innovative advances in technology leading to alternate security deposit options; most notably, rental security deposit insurance.
This legislation dictates terms for landlords who own more than 25 rental units. For context, individual apartment doors or houses constitute a rental unit, rather than 25 properties in total. Starting mid April, landlords will have to offer the following three payment options for a renter’s security deposit:
- Charge a full deposit payable and in no less than six installments.
- Collect an upfront security deposit equal to 50% of one month’s rent payable in one installment. (This was the traditional model used for at least the 2 decades I have been in the business, BUT was charged at 100% or more of 1 month’s rent)
- Or the landlord can choose to have the tenant pay for security deposit insurance in lieu of a security deposit.
In theory, this seems like a very reasonable option for most tenants. Upon further investigation over time, I believe we will see positive effects for using the security deposit insurance option specifically. Where deposit insurance comes up short, however, is in the area of servicing lower income renters. The insurance options that I am familiar with specifically excludes coverage for people who are CMHA voucher holders (Section 8 tenants). It seems that insurance companies are not willing to underwrite Section 8 tenants. In the short term, I do think that this will discourage many Landlords and property management companies to reconsider their relationship with the Section 8 program. For many, you may decide that it is no longer a program that you wish to participate in. For those that do wish to continue to working with the program, tightening screening standards will be a must.
Check back again soon for updates on our first experiences using the security deposit insurance and our bumps and bruises, as well as other successes. As Spencer Johnson, M.D. put it: “Enjoy change! Savor the adventure and enjoy the taste of new cheese!”
