What are the pros and cons of charging a tenancy deposit?

While property managers are not legally required to charge tenancy deposits, it is quite rare for someone to choose not to. To help you decide how best to manage your tenancies, we're unpacking the pros and cons of charging a tenancy deposit and exploring the potential alternatives. 

Pros of charging a tenancy deposit

Most property managers choose to charge a tenancy deposit as the money acts as insurance against any damage to the property that might occur over the course of the tenancy. If a tenant falls into rent arrears, the deposit can also be used to cover any outstanding payments, as long as this is clearly defined in the tenancy agreement. 

A tenancy deposit is usually the equivalent of five weeks' rent. If your tenants are comfortable with paying it upfront as well as the first month's rent, this might be an indication that they are able to manage their finances well. It suggests that they have some savings to fall back on, which should mean that they will be able to pay their rent reliably each month, providing peace of mind.

Pros of not charging a tenancy deposit 

If you choose not to charge a tenancy deposit, the upfront cost of your property will be reduced. This will help you attract a wider pool of tenants, specifically those who can afford the monthly rent but might not have enough savings in reserve to cover the upfront cost of a tenancy deposit. 

If you charge a tenancy deposit for your property, then you must ensure that it is secured in a government-backed deposit protection scheme. However, if you don't take a deposit, you won't be responsible for protecting it. This will save you some time and money. 

Cons of not charging a tenancy deposit

If you do not take a tenancy deposit, then you will not have any insurance against damages to your property. If your tenants leave the property in a worse state than it was found, you will need to pay out of pocket for any necessary repairs or cleaning. You might also feel concerned that tenants will not feel a responsibility to take good care of your property during the tenancy, if they are not worried about recouping their whole tenancy deposit.

Zero deposit schemes

Instead of charging a traditional tenancy deposit, some property managers offer tenants the option to enter into a zero deposit scheme. This allows tenants to provide a one-off, non-refundable fee which acts as a guarantee against damages. This fee is usually less than the tenancy deposit would be but does not have to be returned to the tenant. This enables property managers to attract tenants who cannot afford a tenancy deposit upfront, while still retaining some security against damages to the property.

Simplify tenancy deposits with Concurrent

With Concurrent, you can collect and protect tenancy deposits in-platform as part of the integrated bookings journey, reducing hassle for both you and your tenants. Want to know more? Explore the potential of Concurrent today.