Obligo Puts a New Twist on the Deposit-Free Model

A security deposit–free property is appealing to many renters who may not want to front a large check upon move-in.

A number of companies, such as LeaseLock and LeaseGuarentee, have capitalized on the demand with insurance-style alternatives to the traditional security deposit. Now, a new player in the game, Obligo, is offering a security-deposit substitute for higher-end landlords that allows renters to keep their cash, protects property managers from lost damage charges, and simplifies the administrative work for the landlord and management company.

“A 'deposit-free building' is a cost-effective amenity that landlords can leverage to make their apartments more appealing to upscale renters, while reducing their administrative burden at the same time,” says Obligo CEO and co-founder Omri Dor. “By using Obligo, landlords can accelerate lease-up, lower vacancies, and drive up the rent roll.”

Here, Dor discusses the Obligo platform, how it works, and why it’s beneficial to both property managers and residents.

MFE: Tell us about Obligo. What is it, and how does it work?

Dor: Obligo is a financial technology company that partners with luxury multifamily owners and operators to provide a new kind of amenity—deposit-free properties. In a deposit-free property powered by Obligo, renters provide a digital "billing authorization" in place of a security deposit, allowing the landlord to bill them in the event of damages. The billing authorization amount can be whatever the landlord and renter agree on, and it will usually be the same as what would have been the deposit size, typically one month of rent.

Landlords may only charge up to a limited, pre-agreed upon amount, and unreasonable claims may be disputed, just like a normal deposit. If the landlord makes a claim, Obligo pays out at once but allows renters to repay in installments.

The renter is required to provide authorization to one or more billing methods up front as part of the qualification process. Obligo will test those billing methods using open banking technology, to make sure that funds are available, before making a decision to accept a renter. Renters who don’t qualify for the billing authorization service, or who prefer to pay a traditional deposit, can pay their deposit electronically using the same onboarding experience.

MFE: How is this model different from other no-security deposit offerings?

Dor: Various companies have been offering insurance-based replacements for security deposits for over 20 years. The goal of the insurance-based offerings is to help renters who are struggling to afford their deposits, and the price is accordingly high, usually around 17% of the deposit size. This is addressing an acute need of an important segment of the rental market, but it's not catering to the majority of renters.

Obligo’s goal, in contrast, is to replace all security deposits, starting with luxury multifamily owners and operators. The first step to achieving this goal is to drastically drive down the cost of the service. To do that, Obligo is using a credit-based financial structure (not insurance) and utilizes state-of-the-art payment and underwriting technologies, such as open banking.

The second step toward replacing all security deposits is to take a holistic, property-centric approach, rather than a renter-by-renter approach. Obligo is powering deposit-free properties, where no deposit is the norm and deposits are the exception. To accomplish this, Obligo plugs into each property’s existing tech ecosystem: the CRM, screening, payment, and accounting platforms. Recently, Obligo integrated with Yardi's software suite.

MFE: What need in the multifamily housing industry is Obligo meeting?

Dor: The multifamily market, especially on the luxury end, is facing unprecedented competitive pressure. On the one hand, there’s increasing supply. On the other hand, renters have access to a lot of data and are a lot savvier about comparing locations, prices, amenity packages, and online reviews.

As a result of this competitive pressure, landlords who wish to maintain their rent levels must offer increasingly appealing amenity packages and provide a consistently excellent renting experience. It's no surprise that concessions are at an all-time high in the multifamily market, especially on the luxury end, and this trend is expected to continue throughout 2019. Unlike a concession, however, Obligo increases your NOI, too.

MFE: What are the benefits of this kind of arrangement for property managers?

Dor: Going deposit-free simplifies life for all parties involved. Leasing agents can go paperless and close deals on the spot, without sending their valuable prospects to the bank to get cashier’s checks. Management companies don’t need to process checks, do bank runs, open and close escrow accounts, take W-9 forms, or fill out 1099 forms. Moreover, they don’t have to ‘race’ to return renter deposits, and they can finally put an end to the, “Where’s my deposit?!” choir of angry emails, phone calls, and online reviews.

MFE: What about the benefits for the resident?

Dor: With a traditional deposit, the tenant pays a large sum in advance, before there’s any actual reason for charging such an amount—and they often wait more than two months to reclaim that deposit. With Obligo, the tenant is only charged if and when the landlord has a claim. When a claim is made, Obligo pays the landlord first, but the renter can repay in deferred and interest-free installments.

Obligo doesn't handle disputes directly, but by deferring renter payment Obligo allows renters sufficient time to dispute claims if they need to. Renters can dispute claims just like they would a deposit claim, in accordance with local state and city laws and regulations, usually through small-claims courts.

MFE: Two multifamily managers have implemented Obligo at their properties. What kind of feedback have you received on the system?

Dor: Our two launch partners, Olshan Properties and Adam America, both based in New York, both decided to roll out Obligo for their entire portfolio. In about 10 of our 20 live properties, Obligo is offered as a free amenity, paid for by the landlord. In two buildings, the landlords have decided to return deposits to their existing renters. We think this fact alone, that landlords are willing to pay for the service and return deposits to existing renters, speaks volumes about the value that managers see in deposit-free properties.