Real estate ditching security deposits can drive up housing costs: National Real Estate Investors COO

'We’re trapping people potentially in a payday loan type scheme'

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Most renters are probably all too familiar with paying a cash security deposit to ensure upkeep. In an attempt to alleviate financial stress, lawmakers are finding alternative options for paying security deposits up front.

Cincinnati, Ohio, has already put new security deposit laws into effect that give renters the option to pay with a cash alternative, split payments over six months or opt for security deposit insurance.

National Real Estate Investors Association COO Charles Tassell told FOX Business’ Neil Cavuto that this “misguided, feel-good” law could actually cost renters more money in the long run. When someone who’s investing is put at more risk, Tassell said, there’s a need to “offset” it.

“Either the rents go up or the standards for renting go up, which means people on the margins are less likely to be able to rent,” he said. “In short, what [owners] are going to do is… protect their assets.”

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But Tassell said some of the insurance opt-ins don’t work as most insurance coverage would.

In the event of a car accident, for example, the insured are not asked to pay for repairs. With security deposits, there may be additional payment required, Tassell explained.

“[Renters] don't want to pay $500 upfront, so they pay $3, $5, $10 every month," he said. "And when they move out, the company is going to come back and say, ‘Hey, you need to pay for the $300 of damages.’”

Even though there’s been insurance payment all along, Tassell said, the reason for additional payment lies in the loophole that renters are paying incrementally just to avoid upfront funds.

“We’re trapping people potentially in a payday loan type scheme,” he said.

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