How to Rent a New York Apartment Without a Security Deposit
"The rent is too damn high."
That’s not just the motto of a New York political party, but also the mantra of many New Yorkers.
But there’s one small trick to make the cost a little more bearable, and that’s no-deposit apartment rent and never laying down a security deposit again.
Security deposit basics
A security deposit is the money you “loan” your landlord when you sign your lease to ensure that you haven’t caused any major damage by the time you move out or skip out on your last month’s rent.
The deposit normally runs the equivalent of one or two months’ rent – some states such as California have established a maximum by law. The average monthly rent for an entry-level apartment in New York is more than $2,000 a month. That means, at move in you could be paying more than $6,000 (first month’s rent plus security deposit). That’s a big chunk of change.
In theory, it seems like free money. You give the landlord the deposit when you move in, cause no damage, and get all your money back when you move out. But there are a few problems with that mindset. First, you just lost the interest on several hundred or thousand dollars over the course of maybe many years (and your landlord gets it). That’s a lot of lost dough.
Second, there is no guarantee – and no real set system in place – that your landlord will give you that money back. What you call normal wear-and-tear your landlord can see as a complete carpet replacement and a new paint job. Goodbye security deposit or hello lawsuit.
And lastly, if you move right into another rental, you’d just be shuffling that deposit from one landlord to another anyway. That’s lost money.
Security deposit-free renting
In recent years, much of the New York City rental market has moved to what’s known as deposit-free renting, or signing a lease and moving in with shelling out for a security deposit. But then what is your landlord’s guarantee you won’t trash the place? The answer is a new batch of third-party start-up companies which are basically apartment damage insurance brokers.
In lieu of giving your landlord a chunk of money when you move in, you and your landlord enter into an agreement with these companies for you to pay them an insurance fee to cover your damage costs. Like most types of insurance, you are paying a small fee in hopes you’ll never need it. With these companies, you know your apartment is protected and your landlord knows final damages to the apartment are covered. It’s a win/win.
What you’re actually paying
So how much are you saving?
In our example above, for your $2,000 a month New York apartment, you shelled out four grand in security deposit. Rhino, one new no-deposit apartment rental insurance company, charges less than 1 percent of your rent per month for coverage. With Rhino’s plan, the security cost of your average $2,000 per month rental is about $10 monthly.
Another new company called Jetty charges 17.5 percent of the normal security deposit in a lump fee up front. In our average $2,000 a month apartment, that’s a mere $350 to $700 total at move-in (as opposed to upwards of $4,000), all of which can be rolled over at no charge with each lease renewal. That’s a lot easier pill to swallow.
What you’re actually getting
Much like health insurance, you’ve (hopefully) paid much more into being insured than in medical bills or, in this case, apartment damage. While it is true you no longer get that money back when you move out, the fact remains there’s a good chance that you’ve accrued at least a couple hundred bucks of wear to your apartment in a year or longer. But if you do cause more wear or damage than that, you (and your landlord) aren’t on the hook for thousands of dollars.
Many large rental companies in New York have already made the shift to no-deposit apartment rent with these third-party insurance brokers, a number that’s increasing every day. The system works for landlords too, who no longer have to set up bank accounts to store your money and deal with bookkeeping. But be aware: The insurance companies can still sue you for excessive damage or skipping out on your rent, so don’t get any funny ideas.