Removing security deposits from the rental experience.
Liberating ourselves from the shackles of finding a startup every week that fits into one specific category we will do a free form month in January. Aside from our interest in technology-driven innovation in the real-estate sector, we at proptechaweek have also been known to be fascinated with innovative business models and interesting financial schemes (that won’t make you end up in jail). Our startup this week definitely has got the ambition to remove some of the inertia that’s entrenched in the mainstream rental process.
Rendin is an Estonian startup that has made the traditional security deposit obsolete by creating an insurance product that can be added to any rent-agreement. Rendin replaces the security deposit with a monthly fee that amounts to 2.5% of the rental fee. For example, an apartment that is rented out for €800 + security deposit can now be rented out for an €820 rental fee without a security deposit. From the landlord's point of view, the coverage is more extensive as e.g. the property damage protection is extended to up to 100 months. From the tenant’s perspective, it removes the need for inefficient capital allocation.
But the real headache Rendin is trying to solve is the issue of trust between landlords and tenants. A rental agreement is risky for all parties involved and Rendin is trying to tackle this with an end-to-end solution aimed at mitigating risk including:
A digital signing platform
A solid rental agreement
Background checks on both parties
Free legal advice
Debt collection assistance
A digital claims portal.
imagery courtesy Ketut Subiyanto
The renting process is quite complicated, and removing the need for a security deposit seems to be a sure way to streamline the process and eliminate unnecessary hassle. If the fee could also cover tenant liability insurance then this would even further remove admin and risk from the equation. Reducing upfront costs increases the number of potential tenants preventing excessive vacancy.
As society is evolving into an anything-as-a-service paradigm, security deposits feel like a relic of the past, an insurance model appears much more aligned with the current market climate. A security deposit is a hindrance to upward social mobility, unnecessarily reserving capital that otherwise could be used as a financial cushion, and it can even exclude less fortunate individuals from the rental market.
Deposit free rent might even help combat discrimination, as reducing the risk involved in the rental transactions might also soften the influence of potential personal biases in selecting a suitable renter.
👎 Why not?
Zero deposit rental schemes, because they are marketed as a cheaper option, might attract predominantly clientele from less well-off sections of the market increasing the risk of non-payment for the insurer. Most service providers offering this service only recently entered the market, and are not yet sure what the rate of issued claims will be and whether it is substantially different than the rate of claims that are made via the traditional rental process.
Iron-clad contracts and background checks seem to be the main way to tackle the risks for the service providers so an already widely used credit score mechanism seems to be a requirement for efficiently offering the service into a certain market.
Rendin was founded in 2019 out of Tallinn Estonia by 3 co-founders: Alain Aun, Alar Mäerand, and Maiko Saluorg. They partnered up with ERGO Insurance SE to provide the insurance part of the product and launched on March 10, 2020 in their home market coinciding with the start of a nation-wide Corona lockdown. Despite this unfortunate timing, the product found traction in the market, and with investors… They just raised a seed round of €1.2 million.
🕵️♀️ Who else?
Zero deposit schemes seem particularly popular in the UK:
Canopy offers a Depositfree insurance product, it replaces the security deposit with a non-refundable 10% cost of the usual 8 weeks deposit.
Another option is Zerodeposit.com, which replaces the security deposit with the cost of one week's rent. One interesting thing is that they also allow existing renters to transfer to this scheme granting them extra liquidity.
Also UK based is Fronted, they reduce the need of paying the complete security deposit upfront and allow it to be paid back during the rental period. The advantage here is that the renter can build up their own capital during the letting period. Also noteworthy is that they plan to use PSD2 and open banking to assess their clients’ creditworthiness. They are currently awaiting regulatory approval.
Another competitor originating from the British isles is Flatfair. Their offering is fairly similar to the one offered by Rendin. They also offer additional products: Boost an insurance product aimed to improve the coverage for landlords and Resolve a free online portal that allows landlords and tenants to agree on rent repayment in the case of rent arrears.
Reposit works pretty similarly to the others discussed above. They work with an arbiter to arbitrate disputes at the end of the letting period.
In the United States, Rhino markets itself as low-cost insurance that satisfies your security deposit requirement.
Another offering aimed at property managers is Leaselock. They team up with property owners to replace security deposits for their renters offering deep integration with existing administrative software.
📚 Further reading?
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