I've been mulling this over for a while now and I'm not sure how much is the right amount to charge in a security deposit. So I wanted to get some opinions. My gut says something like "two months the rent" but that can be a lot for people. I currently rent and I don't remember how much the deposit was, but it wasn't much. I live in Texas and from what I've been able to research it could take up to 2 months to evict someone. So my concern would be that I'd be out to months rent and then if I happen to get one of the horror stories of a tenant trashing the house out of spite and anger I'd want to be able to repair any damages.
So my question is how much does everyone else charge? Do you have a formula based on the price? Is it the same for every property? Or do you have some trick to figuring it out? Thanks in advanced!
How much you are allowed to charge depends on state law.
1 month rent. You will see less in apartments though. I take one month security and last month upfront. I am able to do this because the market allows that. When things get tough it is hard to get last month.
I leased both apartments and SFR's in the Cincinnati area. In our area it is tough to get more than a month's rent for a deposit, especially in some low end markets, unless there are pets involved. It often seems to be the norm here to provide some sort of rent concession or move in special to further attract tenants, especially for apartments, such as: half-off first month, free cable/internet, gift cards, etc.
The one rule I have always stuck to is: you must get at least one month's rent for the deposit, any less and the tenant doesn't have enough skin in the game to prevent them from packing up and leaving in the middle of the night. If you are going to run a move in special, make sure you insist on a full deposit and take any sort of tenant benefit off of the first months rent.
A move in special in my opinion might be a good option if you are trying to quickly lease up an entire apartment or multi-family building, but I think it is unnecessary for leasing SFR's unless they are in a poor school district or an undesirable area.
Hope this is useful. Good luck!
@Michael DeStefano I charge one month rent for both my NC, and my FL homes.
Awesome! Thanks for the advice!
Agree on one month. By law in my state I am limited to first month and security not to exceed one month. No collecting last month.
I have only SFRs, and people have so far been able to come up with the deposit. They are also getting newly-rehabbed houses, so the deposit is important to me. I would rather compromise on rent amount or weekly payments than on security deposit.
@Michael DeStefano State law dictates how much you CAN charge, but your local market usually dictates how much you SHOULD charge. For instance, in California the maximum security deposit you can charge is two months rent for an unfurnished property (or three months rent for a furnished property). However, most landlords in my market only charge an amount equal to one months rent for the security deposit. While charging more than that is allowed by state law, you would greatly reduce your number of potential applicants if you did.
It can also depend on the property type. Single family houses are usually one months rent, but I see apartments all the time advertising $99 security deposits and even no security deposit. It's just a matter of knowing your market and your target applicant/tenant.
@Kyle J. I see. Is there a website that might tell me some of that info? Or could I just find what the state will let me charge on the state website?
I charge a min of $1000. Some of my rents are greater than $1000 so in these cases I charge one month rent. I also have a property that rents for less than $1000. I use the amount I charge for a security deposit as part of my tenant screening process.
Hey @Michael DeStefano ,
Everyone here is on point with what they are saying. One thing I have done to help market and get a larger deposit is to spread out the payment timeframe. i.e. collecting first and last upfront with a large deposit payable over another couple of weeks. This protects me by getting two months rent upfront, and allows my tenants to essentially transfer their deposit from their current property to me once they get it back. This allows me to charge a larger deposit since most renters cannot swing essentially three months of rent before they move out of their current property.
Google "Chapter 92 of the Texas Property Code"and the first up is the actual law for your state so you can confirm if it is the same as CA. Skip through to find the security paragraph. It would be good for you to review the whole thing anyways since your a landlord there. Worth double checking as you never know ... Texans like to walk their own walk so it may actually be different. ;p
Enough top cover any damage and not so much that it's higher than market custom.
That said, if particular tenant is not well-qualified, always request a co-signer and charge a higher deposit.
Your deposit amount is dictated by the cost of contractors in your area (average cost to repair tenant damage) and market convention... generally 1 to 2 months rent.
I had brought this up in another thread. I got burned by a tenant and it almost cost me several hundred dollars. My new policy is 1.5 time the monthly rent. Having the larger deposit gives you a cushion if the tenant tells you to keep the security deposit.
We collect the higher end of what is customary in our rental market.
Yes, consistent with most of us here. If possible, charge as much as you can. This is how you minimize your likelihood of large losses.
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