Q: Couldn't a property owner use reserves (deposits) as a mitigant to the risk of unpaid rental revenues?
A: Yes. A security deposit or first and last month's rent paid in advance do serve as mitigants against the risk of lost revenues in the form of delinquent or unpaid rent payments by existing tenants. Note that the ability of a landlord to use a security deposit to offset rental non-payment depends on wording in the rental or lease agreement. Some restrictions might accordingly apple.
Going a step further in our response, the eviction process for non-payment and violation of the rental or lease agreement can unfortunately be long and costly. Even so, upfront cash deposits such as first and last month payments do represent a (partial) risk mitigant and can be used to offset unpaid rentals.
To provide additional perspective, the larger challenge or risk to rental revenues is a combination of higher vacancies and lower rental rates that could be triggered by an economic downturn. There is no practical mitigant against such market forces that are outside of the control and influence of property management.
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