Rental deposit schemes: Should or shouldn’t you ask for a deposit?
This article will explore the pros and cons of accepting rental deposits in the UK’s PBSA and BTR industries and whether they are worth it for landlords.
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Ok, so you have a decision to make on rental deposits, and we will offer lots to think about both for and against the idea, but there is one thing we need to tell you first.
While we don’t have hard borders within the UK, there are statute and guidance differences between countries. Scotland and England, in this instance, are great examples as they differ in rules on deposit schemes.
Here are the information pages for you:
Rule differences will affect your portfolio, so you will need to decide if deposit schemes are the right way to go and how you manage that if your stock portfolio crosses borders.
Secondly, and also very important, you’ll need to consider future-proofing your deposit strategy in case stock opportunities take you to different ends of the United Kingdom.
Let’s examine the pros and cons of offering deposit schemes to your tenants.
When it comes to renting out properties in the purpose-built student accommodation (PBSA) and build-to-rent (BTR) sectors, landlords often require a rental deposit from tenants as a security measure.
A rental deposit is a sum of money that tenants pay upfront as a guarantee against any damage to the property or unpaid rent.
Accepting rental deposits in PBSA and BTR industries can have several advantages for landlords.
Accepting rental deposits can give landlords a sense of security and peace of mind when renting out their properties. However, there are also some drawbacks to consider, which we will explore in the next section.
While accepting rental deposits can have several advantages for landlords, there are also some potential drawbacks.
While the cons of accepting rental deposits may seem daunting, it's important to weigh them against the benefits and assess whether rental deposits are worth it for your specific property and rental scheme.
Suppose you do accept rental deposits. In that case, it's crucial to make sure you have clear terms and conditions in your rental agreement and follow the relevant legal guidelines for handling and returning deposits.
Next, let's explore alternatives to rental deposits in the PBSA and BTR industries.
If you've decided that the cons of accepting rental deposits outweigh the pros, or if you want to offer an alternative to rental deposits, there are several options to consider.
Ultimately, the benefits of choosing an alternative will depend on your specific rental scheme, financial goals, and the needs and preferences of your tenants.
It's essential to carefully consider each option and choose the one that makes the most sense for you and your property.
We have seen this happening more and more among clients. By waiving the traditional rental deposit system altogether, landlords make their rental properties more attractive to a wider range of tenants.
And it’s really helping them stand out against the competition. It’s also heading towards a possible new standard practice for the industry.
But how does that work?
Novel Student and Moda are great examples of this. In both cases, they ask for a holding deposit deductible from the first month’s rent. The continuing rental amount then covers the provision for rental upgrades or refurbishments if damage is caused.
As this idea rolls out, we’ve also seen tech providing streamlined processes that help manage a truly flexible no-deposit system. The flatfair and Spike Global integration is a great example.
Flatfair’s no-deposit solution allows tenants to join a membership program at the start of their tenancy, equal to one week’s rent ( plus VAT). Coupled with Spike Global’s easy reservation and tenant management system, you have a process that is as easy for the client as booking in and out of a hotel.
Here’s why we think this is a game-changer… Generation X has pathed the way for faster, more convenient ways to do things. They want more flexibility than any other generation and are also pretty savvy. They do more research before they buy things and invest in things that make their life easier - flexible renting just makes good sense at a time in their life when they are not yet ready to settle.
Wherever you fall on asking for deposits, you need to consider how this affects your bookkeeping, and this is what we will look at next.
As discussed, there are many factors to consider when deciding whether to accept rental deposits for your PBSA or BTR business. But did you know that this decision can also affect your bookkeeping process?
If you accept rental deposits, you must ensure your bookkeeping system is set up to handle these transactions correctly. This includes properly accounting for the deposit as a liability and accurately tracking any interest earned on the deposit.
On the other hand, if you choose not to accept rental deposits, you may have to find alternative ways to ensure financial security, such as requiring a guarantor or implementing a renter's insurance policy.
Then if you choose a no-deposit scheme, you’ll need to a bookkeeping system that tracks rental expenses so that your rentable amount always covers potential damage. You don’t want that eating into your profits!
Regardless of your choice, having a solid bookkeeping system is crucial to accurately tracking your rental income and expenses. This helps you stay organised and compliant with tax laws and provides valuable insights into the financial health of your rental business.
If you need assistance with PBSA and BTR bookkeeping, we're here to help. Book a call to learn more about our bookkeeping services and how we can support your rental business.