A surprising effect of COVID-19 is how the world has rapidly digitized in its wake. Video conferencing technologies like Zoom are now used for every meeting, social event, conference, school class and doctor consultation. Many industries have adapted quickly to remote working, and we have all been forced to adapt to sheltering in place. The government has stepped in to help those that are struggling to pay their bills. This represents a threat to our economy, one that would find many renters unable to pay their rent as millions have been furloughed, laid off, or have had their salary reduced.
To add to this, there is a lot of confusion about the different options in public discussion: eviction bans, rent payment plans and deferments, stimulus checks, rent strikes, late fee prohibitions, and the list goes on. Many landlords are doing their best to find solutions for their tenants, to help them navigate this difficult time. After all, we are all interconnected in this financial system, and relief for renters will also elevate landlords. $1,200 stimulus checks, however, will not be enough, and this puts landlords in a tough position since they don’t have the ability to defer many of their fixed costs.
In the U.S., an estimated $46.5b in security deposits is locked up in escrow accounts, waiting for the leases that they are associated with to expire.
Both parties need a different source of capital to cover their bills, a source that is untapped, plentiful and easily accessible. It turns out the answer to this cash crunch is sitting right in front of us. In the U.S., an estimated $46.5b in security deposits is locked up in escrow accounts, waiting for the leases that they are associated with to expire.
Until today, security deposits have been considered a necessary evil. Property owners need security that their property will be in pristine condition after a renter moves out, and they want to keep their renter accountable throughout the duration of the lease. But in today’s world, conventional deposits have become unnecessary. Think about the last time you checked into a hotel. Did the hotel require a security deposit? No, the hotel simply swiped your credit card, placed a ‘hold’ on a line of credit, and was then authorized to charge that credit line. Like a hotel check-in, technology now enables landlords to be preauthorized to charge renters up to a pre-agreed amount.
While returning deposits might feel like it exposes property owners and managers to more risk, the opposite is true. By returning deposits or applying them towards rent, they are preventing a wave of delinquencies. Obligo is one of the companies providing a cashless deposit solution. They use AI-based underwriting and open banking technology to calculate a renter’s risk of default (much better than a FICO score could). Their co-founder and CEO, Roey Dor, explained the importance of this new type of security in today’s world, “Security deposits are a huge source of capital that can provide immediate liquidity to families in need, and it’s right under everyone’s feet. We want to do everything in our power to help renters keep a roof over their heads, and our technology can help free up this money while maintaining the same level of security for property owners.”
Even before this crisis, large landlords had adopted this credit-based, deposit-free solution as a perk for their tenants, and a way to streamline the arduous accounting process of collecting, managing, and returning cash deposits. Now, in the country’s time of need, we might see wide-scale adoption of solutions like Obligo. This advancement will help tenants make their rent payments and ensure property owners weather this ensuing storm. Like Zoom, it is the digital solution that the real estate industry has long needed, and it will place the industry in a far stronger position once the storm is over.