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Why renters need better cash flow solutions
Access to money can be critical in emergency situations
By Chanin Ballance, CEO & Co-founder Roost
A trip to the emergency room. A last-minute flight to see a sick family member. A car repair that costs more than planned. If you live paycheck to paycheck, a single unexpected expense can leave you short on money and at risk of sinking into debt (or further into debt). But what if we could help solve this problem by giving people better access to their own money? After several years of record-breaking unemployment, increasing debt, and rising rent, cash flow solutions for renters are more necessary than ever.
Emergency savings funds are hard to build
During the pandemic, the economic vulnerability of so many became clear. A 2021 survey by Bankrate found that 25% of Americans have no emergency savings and 51% have less than three months’ worth. Unemployment reached a record 14.7% in April 2020, with 20.5 million jobs lost. Americans were not prepared for this economic hit—particularly those in the lower and middle class who are the least likely to have savings to fall back on.
Of course, debt was a pervasive problem long before COVID-19. And debt can make it extremely difficult to build an emergency fund. When your paycheck barely covers your bills, rent, and debt payment, it’s essentially impossible to plan ahead.
In 2020 and again in 2021, the federal government stepped in to provide emergency funds for individuals and families. The relief checks, PPP loans, and additional unemployment income made a big difference for many people. The availability of emergency funds allowed the recently un- or underemployed to hold on to their homes, their businesses, and to keep putting food on the table.
Unfortunately, that type of widespread economic relief is rare. And most people do not have their own emergency funds to cover unexpected expenses. When you don’t have those funds, additional costs quickly add up.
The hidden costs of mismatches in cash flow
Not having enough money to cover an expense is often just one of many financial setbacks. A mismatch in cash flow can quickly lead to compounding costs.
Take rent, for example. Let’s say you’re a freelancer waiting on an overdue payment from a client. If that unpaid invoice leaves you short on money to cover rent, you’re likely facing a 5% late fee. (If your rent is $1,000, that’s $50 extra for being late.) If you’d enrolled in automatic payments to pay your rent and your checking account lacked sufficient funds, then you can tack on the cost of an overdraft fee, too.
Roost found that nearly 25 percent of all renters missed a rent payment or paid late at least once in the past 12 months. And they’re paying on average $150 in late rent penalties annually, along with $117 in overdraft fees, $76 on other late fees (car, credit card, utility), and $150 in added costs from drops in credit scores.
The repercussions of being temporarily short on money can quickly turn into additional financial hardship. Immediate access to money you’ve already earned or already have but can’t yet access can help.
The benefits and pitfalls of cash flow solutions
Cash flow solutions help people overcome emergencies or unexpected expenses with their own money. This might make you think of “payday loans,” which have a justifiably terrible reputation. Payday loans are small personal loans with interest rates around 300%-500%. If the loans are not paid back in full within a short period of time, the amount owed quickly adds up. According to Pew Research, about 12 million Americans take out these loans each year and collectively pay nine billion on loan fees.
Clearly, this is not a great option.
But responsible cash flow solutions can be a huge relief to those who need to cover an immediate expense. And they don’t have to be risky, interest-heavy loans. Cash flow solutions can be found in expected places, and the security deposit you put down on a rental unit is one of them.
The average net worth of a rental tenant in America is $6,300. When renters first sign the lease on a new property, they typically put down one or two months’ worth of rent as a security deposit—sometimes three! If their financial situation resembles the average renter, then a security deposit might be a significant portion of their net worth—completely draining their savings.
Security deposits are necessary to help protect landlords, but having so much of their money locked up can really hurt renters. Roost makes it possible to reclaim the liquidity of a security deposit, allowing renters to access up to 40% with a 90-day repayment plan.
And because Roost does not require an application or credit check, renters can easily access this option without pulling their credit score. Borrowing from your security deposit and making repayments can even help you build credit, contributing positively to your overall financial health and well-being.
This is a cash flow solution that makes sense. And it stands to benefit 44.1 million American households who rent.
The impact of debt is more than financial
The burden of debt clearly impacts your financial health, but it can also affect your emotional, psychological, and physical well-being. If you have debt, you’re more likely to experience impaired cognitive function, low self-esteem, and anxiety. Your productivity might also decrease, making it more challenging to bounce back. Anxiety and depression can inhibit your ability to work, which can lead to lost wages or layoffs. And if you’re already unemployed, debt can make it harder to regain employment.
But there are solutions that can help people stop the cycle before it begins.
Cash flow solutions, including access to your rental property security deposit, can offer the kind of relief we all deserve. Simply by making money available that is already yours.
Roost is a mission-driven tech company focused on improving property NOI and renter financial health. Roost’s free platform helps large multifamily automate the deposit intake and refund process, reduce compliance risk, and minimize disputes. It also helps renters avoid late fees and build credit history by providing renting guidance, financial tips, and savings deals, and a simple way to turn their refundable deposits into an instant emergency fund.