Rental community platform startup Snug.com is launching its first feature, BondCover, a surety bond designed to transform the rental market by freeing up $4 billion worth of rental bonds.
“With 2.5 million renters across Australia, it’s time to recognise good renting,” says Justin Butterworth, Founder of Snug.
“The current cash bond system is completely outdated, and the resulting liquidity and opportunity cost for renters is astronomical,” Mr Butterworth said.
“BondCover provides the necessary protection to owners, but in a way that doesn’t lock down renters’ precious cash for no good reason – a win-win for all parties. And imagine the returns if renters had invested $4 billion in the Sydney property market, paid off debt, or invested in Amazon shares over the past five years instead!”
Sydney-based Snug was one of the first startups to be housed in IAG’s onsite accelerator, Firemark Labs. Mr Butterworth now has 10 employees and says the future goal is to create a rental community platform that brings together all players.
The idea behind BondCover is that swaps cash for a certificate of guarantee. Renters can purchase BondCover for around five per cent of the face value of the rental bond, and are provided with a certificate of guarantee to give the owner or agent to replace a cash bond. BondCover eliminates trust account fraud which sees millions of dollars lost in each year, Mr Butterworth said.
“Snug has a number of high profile investors and is backed up to $100 million in face value of bonds based on actuarial risks. Snug will be announcing its underwriting insurance partner in the coming weeks ahead of the first BondCover certificates being issued on 1 October.
BondCover swaps an old-fashioned cash rental bond with a certificate of guarantee, backed by Snug. This guarantees that the owner will be paid for a valid claim against the rental bond using the same claims process, rights and obligations for renters and owners – but without tying up thousands in cash. Owner claims are paid within two business days simply by entering the Tribunal order number.
Renters receive a quote based on their details. Snug validates email, mobile, address, rental history, bond, property and lease details with the owner or authorised manager.
“We then perform identity check of drivers licence or passport. Checks are performed for bankruptcy and national tenancy database. Finally, bond details and signature with the rental bond authority are cross checked. Also behind the scenes, a number of other behavioural indicators in the application process are assessed to protect owners and agents.”
“From owners’ and real estate agents’ perspective, it guarantees payment in the event of a claim and default. It also lowers vacancy because it reduces barriers to renting. In areas where there is high vacancy outside metro area, a property that accepts BondCover has lower barriers to get a property let.
“BondCover also comes with a referral program so there is the prospect of additional income for agents. For real estate agents, I would say with a third of the population now renting it is critical for agents to recognise renters as their customer too. Not only are the occupants returning rental yields, they are the rentvestors and property owners of future,” Mr Butterworth said.
Snug and BondCover was conceived a year ago when the founder’s research on nearly two million bonds uncovered that 99 per cent of renters do the right thing: around 80 per cent of rental bonds are refunded without claim, and almost all of the remaining 20 per cent is largely negotiated then resolved between parties.
Mr Butterworth himself also spent time mapping the renting journey and discovering the financial and emotional stress experienced when renting.
“I’ve been a renter six times for more than 12 years in Sydney. I’ve never missed a payment and never had a claim. This innovative product is a win for renters, win for owners because they are better protected and win for agents,” he said.
“Snug’s BondCover product has been designed to comply with existing rental tenancy legislation and relevant financial services and insurance regulations. This is digital innovation in housing that’s good news for affordability, and it’s a stimulus to the economy with strong consumer benefits,” continued Justin Butterworth.
“The world has changed since the cash bond system was designed. It’s 2017; we have the technology to better manage identity, reputation and recourse to create a more efficient securitised rental bond system. The days of the cash bond are over,” he concluded.
Snug will open BondCover applications to the 2.5 million Australians currently renting on 1 September 2017.