Victoria Giresi has rented apartments all over the country in her years working as a traveling nurse, but she’d never seen anything like the New York City rental process.
Working with a real estate broker should have made things easier, but it seemed to add a layer of bureaucracy, Giresi said. She was put off by having to pay to have her credit checked, and then wait for the results, even as other people clamored for the same apartments she was interested in. The two months’ worth of rent many landlords wanted as a security deposit made it a no-brainer: Giresi bowed out of the New York City market, opting for a Craigslist rental directly from a homeowner in suburban New Jersey.
Even as some pockets of many metros are seeing a flood of new rental apartments ease the supply crunch, rents remain high — up 3.6% compared to a year ago, according to fresh CPI data - and the barriers to entry, for many people, formidable. Now a new wave of start-ups is trying to apply fintech principles to helping ease some of the angst of getting into a rental agreement, even if it can’t do much about the rent itself.
TheGuarantors is one. It launched in 2016, offering to be the lease guarantor for would-be tenants whose income level or credit score kept them just out of reach of the apartment they really wanted. This summer, the company started to offer a “security deposit replacement,” which allows tenants to pay a small fee in lieu of a traditional deposit. The company is growing steadily and says it now has a presence in about 1,500 buildings across seven states.
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Julien Bonneville, TheGuarantors CEO, hatched the idea for the company from his own frustrations coming to New York for graduate studies at Columbia University. As Bonneville told MarketWatch in an interview, “I applied to 12 apartments, I got rejected from 12 apartments.”
TheGuarantors>Bonneville believes his products are a win-win for tenants and landlords, calling them a means of access for tenants and financial security for landlords.
Here’s how it works: a prospective tenant pays a nonrefundable fee equal to 17% of one month's rent to TheGuarantors. The company won’t say how much it keeps as a commission, but notes that “the vast majority” of the tenant’s money goes on to the landlord, and ends up being about 2-3 times higher than the amount the landlords ever keep as claimed security deposits.
What’s more, property owners are no longer taking a discrete security deposit from each individual tenant. That means landlords, as TheGuarantors says, “have a pool of capital to draw from that covers all renters in the program, rather than majority of cash security deposit funds sitting idle and being tied to a specific renter.”
Some consumer advocates are wary about innovations like the ones TheGuarantors – and competitors like Jetty and Insurent – offer.
“I don’t think they’re a great deal for renters,” said Ilyce Glink,a syndicated real estate columnist and author of 100 Questions Every First-Time Home Buyer Should Ask.
As for the security deposit replacement, Glink said, “I don’t like the idea at all of it being nonrefundable.” As a landlady herself, Glink fully appreciates the risk that any property owner takes on. Still, she said, “This to me sounds like a gimmick that will help some people but not enough people, and when they realize they won’t get it back, there will be a problem. I think that may make for some unhappy interactions between the landlord and tenant.”
It’s worth pointing out that there are often many “unhappy interactions” between landlords and tenants over the return of the traditional security deposit, either when landlords fail to return that money promptly, or there are disputes over the upkeep of the property. Still, that money – plus interest – rightfully belongs to any tenant who’s vacating a rental that’s been kept in good condition.
Glink is also very skeptical about the idea of paying extra to be able to afford an apartment that’s, well, unaffordable. “There’s always a less-expensive place to live, it’s just going to be less convenient. It has to be affordable or it doesn’t work,” she said.
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Nancy Simmons, who runs the Washington, D.C.-area Apartment Detectives search company, was a bit more measured about the security deposit alternative. “If you don’t have the upfront funds to provide for a security deposit, that can be helpful. It’s always good to have options, especially in really tight markets.”
But many landlords will happily accept tenants who don’t have U.S. credit, or much credit at all, Simmons noted. Services like hers or a little extra legwork can go a long way to saving money, she said.
Still, in a market that may no longer be “really tight,” and may even be turning in the favor of tenants, some landlords are offering products like those from TheGuarantors as a tenant amenity. “The real advantage is for our residents, and that’s what makes this relationship worthwhile,” David Curcio, a Bozzuto Management Company executive, told MarketWatch in an email. “As we strive to create extraordinary experiences every day, it’s offerings such as the lease guaranty service that help us do just that.”
Representatives from Equity Residential EQR, -1.05% , Rockrose, and Tishman Speyer, other companies with which TheGuarantors has agreements, did not respond to requests for comment. But it’s worth noting that companies like these offer some of the highest-end rentals on the market. (The cheapest Bozzuto apartment available this week in the New York City metro area was a studio in Jersey City, for $1,652.) Put another way, these landlords are offering a wider array of services to help people who already have resources and access.
Bonneville estimates that 25% of renters are struggle to secure an apartment, and end up living in what he calls “a sub-optimal unit.” Of that universe of striving renters, he estimates 15% can be helped by TheGuarantors’ model. He points to new agreements with buildings that have more “diverse” populations as a way of showing that the company is trying to scale its offerings more broadly.
For her part, Victoria Giresi said she certainly sees the appeal of products like those from TheGuarantors. Still, she added, for her own part, she wouldn’t consider an apartment that cost more than she could easily afford, even in a city like New York “where the housing is insane.”
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