Importance of a paid in advance Security Deposit

19 Replies

I use the security deposit (and the first month's rent) as a test case to see if the potential tenant will be able to pay rent on time. If they can't come up with a security deposit and 1st Month's rent prior to when they want the lease to start that is a huge indicator that they will not be able to make timely rent payments for the following months.

I have worked with a few tenants over the years who were having problems coming up with enough money for both 1st month's rent and the security deposit and invariably within a few months the tenants would have problems paying the rent on time. I know some of you are quite happy to legitimately make the extra money, but to me it is not worth the hassle and frustration.

The temptation is often there to work with someone, but if you do all you are accomplishing is taking on a problem tenant.

Pet deposits can be hard to come up eith also. In the past I have let tenants split a $200 pet deposit into two monthly payments. Now instead of a pet deposit I charge pet rent.

Curious if anyone has done an income verification, and yet still had a tenant who couldn't produce 1st month's rent and security? So, in other words you confirm they make enough and have good credit, but they still have no cash on hand or savings. How many consider this a red flag, or is proof of income enough?

Originally posted by @Kris Taylor :
Curious if anyone has done an income verification, and yet still had a tenant who couldn't produce 1st month's rent and security? So, in other words you confirm they make enough and have good credit, but they still have no cash on hand or savings. How many consider this a red flag, or is proof of income enough?

I have this problem come up about 1/3 to 1/2 the time. It is to be expected since a large number of Americans, no matter what the salary level, live paycheck to paycheck.

I have moved toward requiring full security deposit and 1st months rent in a money order (and dog deposit) if it applies at the lease signing.

@Frank Romine Question about your pet rent: Are you basically charging the tenants a non-refundable deposit over the life of the lease. Like a $400 deposit turns into about $35/month? What is your pent rent per animal?

Originally posted by @Jake Weir :
I have moved toward requiring full security deposit and 1st months rent in a money order (and dog deposit) if it applies at the lease signing.

@Frank R. Question about your pet rent: Are you basically charging the tenants a non-refundable deposit over the life of the lease. Like a $400 deposit turns into about $35/month? What is your pent rent per animal?

It is not really a non refundable deposit. It is rent. Small animal $10 per month. Large animal $20 per month.

I agree with your position entirely @Cal C.

Also, @Jake Weir brings up a good point about getting those payments in certified funds. Its only takes once for the security deposit check to bounce to realize you are in a for a long, painful relationship with your tenant. Better to not let them get in the house in the first place then to have to get them out via eviction.

The only item I will ever let them split is a Pet Deposit and it must be in the 1st 2 months rent.

Im thinking about also charging 2x Security Deposit for smokers going forward, since re-painting and re-carpeting will almost always be required.

I never take anything but a cashier's check or a money order for Security deposit and 1st Month's rent. Checks are absolutely not accepted until following months. Cash is a possibility but try to avoid it if at all possible, too many things that can go wrong.

I was caught in the position where I took money order for deposit and first month rent only to find out the tenants in later months didn't have a checking account and now I'm forced to meet up with them for payment (due to the fact I think mailing money orders is dangerous and they'll find a way to use the excuse lost in the mail). Income and checking verification will be a permanent process for here on out

Originally posted by @Derrick Mehal :
I was caught in the position where I took money order for deposit and first month rent only to find out the tenants in later months didn't have a checking account and now I'm forced to meet up with them for payment (due to the fact I think mailing money orders is dangerous and they'll find a way to use the excuse lost in the mail). Income and checking verification will be a permanent process for here on out

You have to put the onus on them. They have to get the money order into your mailbox by due date. If not then they have a late fee. If it is lost in the mail then they have to claim a refund. They are still responsible for the late fee.

Also I use an automated rent payment service, clearnow but there are others, I reduce the rent by $50 if they use the service. In reality it is market rent plus $50. I have had some good tenants without a bank account pay me $50 extra each month for the privilege of sending in money orders for two years now since they don't have a bank account.

@Cal C.,

It is good to see that you are penalizing the tenant for not having a bank account. You must be a new landlord.

Joe Gore

IMO, Bank accountor not it is still tenants responsibilty to have the rent paid to the landlord in full by the due date as per terms on the lease.

If they do not have a checking account that is an inconvenience for them and shouldn't be for you.

regards,

Chris

Yep I only started ten years ago. Going to an automated rent payment system was one of the best ideas I've found. Eliminates a lot of hassle for both myself and the tenants. Tenants without a bank account are so upset about being penalized they have renewed 13 times now (month to month).

I've started telling potential tenants that pet rent is $25 per animal per month, plus another $300 for the deposit. Pet owners spend thousands of dollars on vet bills, obedience school, treats, clothes, toys, etc. for their pets, so requiring a pet deposit has never raised an eyebrow. I've even had tenants offer more rent on their own if I would accept their pets (some of our condos do not allow tenants to have pets).

I don't negotiate the security deposit or first month's rent. It's required to be paid in full with a money order only. If applicants ask if they can split the deposit into multiple payments, RUN! If they don't have it when they know they'll be moving, they'll never have it. Rent is then paid going forward either through erentpayment.com or by direct depositing into my business account at the local bank. No checks ever.

Originally posted by @Kris Taylor :
Curious if anyone has done an income verification, and yet still had a tenant who couldn't produce 1st month's rent and security? So, in other words you confirm they make enough and have good credit, but they still have no cash on hand or savings. How many consider this a red flag, or is proof of income enough?

I have had this happen once with a tenant that I accepted and has been a very good tenant. But the specifics in this tenant were not what you might expect. This tenant was a brand new legal resident in the USA, so no prior landlord or credit to verify. But income was verified to be almost six times rent. And since they came to the USA to work and make more money, and the apartment was two blocks from the job so they could walk to work (no car even to this day), it seemed to be less of a risk to give them the chance.

But somebody who has been at a good paying job and can't come up with move-in money, then I would explore the reason why more closely. Could be that a marital / domestic break-up is in process ...

In our jurisdiction, all "deposits" are refundable and all "fees" and "rent" are not. We do not allow move-in until all deposits and rent and fees (application and move-in) are paid.

The responsible pet owners rarely question paying extra security deposit and additional rent per month. We don't accept pets, but when we have bought properties in which we grandfathered in a pet. For a pet, we get an extra security deposit of $300 and extra rent of $30 per month (that equates to $1 per day). We have an unauthorized pet/animal fee of $50 that is charged immediately if we find an unauthorized pet or animal in the property or kept on the premises.

In addition to our pet policy, we have a procedure for accepting qualified service animals for people with qualified disabilities. Federal law not allow charging extra for service animals.

Marcia Maynard, Fischer Properties | Podcast Guest on Show #83

I'd say that you can't exactly base your decision solely on whether or not a tenant can come up with first month's rent and security deposit. At least for me, I know that is not the case.

When I PCS'ed to Hawaii, I had no idea what I was in for. First month's rent + security deposit was $4100. After all the expenses of moving my girlfriend's car + her and her son's plane tickets, and the hotel we had been living in for 2 weeks, I just didn't have the money. The landlord understood, and I think he based his decision more along the lines of how we presented ourselves, and our character so to speak. We paid him $1,000 up front, moved in, and once the lease was signed we were able to secure a short term loan from NMCRS.

For him, it was a great financial move. Guaranteed paycheck on the 1st (probably for 3 years). We scrubbed the place from top to bottom when we moved in, behind all appliances, closets etc. Not that it was filthy or anything, we just can't stand living in a dirty house. You never know how the person before you kept the place.

Anyways point is, I don't think you can make that decision based solely on whether or not your potential tenant has money for the security deposit at that moment. Stuff happens... I'd definitely make sure they had a good reason. And as long as everything checked out, I'd be willing to give them a chance.

Originally posted by @Dawn Anastasi :
I always collect security deposit and first month's rent in advance of lease signing. If someone doesn't have the money or wants to pay in "parts", I say "next".

That is definitely what I do too, but purpose of the thread is to provide a little reasoning behind that decision.

@Steve Babiak definitely seems like your situation was an exception to the norm

@Cal C. Definitely, sad but true re: Americans having no savings

@Chris Masons ITA that not having a checking account should not be the landord's problem