Two months security deposit, too much?
Should I start charging two months rent, the maximum legal amount in California, for the security deposit before a tenant moves in? Or, will that be too much and scare off potential tenants?
Previously, I've always asked for a month's rent or even less for the security deposit. With my current security deposit, its about five hundred dollars less than the month's rent.
But, after a situation where a tenant threatened to break the lease, I realized how ineffective that smaller security deposit was- it wouldn't have been enough if the place had been vacant for a month or longer despite a reasonable attempt to find a replacement tenant. And, that's assuming that the tenant hadn't caused any damages beyond normal wear and tear.
So, the only way I would have recovered the rest of the amount a tenant owed would have been to go after them in small claims court. Even though there would have been no lawyer fees because lawyers are barred from small claims court in California, it seems a lot of landlords here aren't proponents of going after the tenant in that system because of the court costs and the time and hassle it would take to pursue that money.
By charging two months rent for the security deposit, you're flipping those courts costs and time from the landlord to the tenant. Now, its the tenant who has to go through all that hassle and work if they want to recover that money. Instead of the landlord deciding its not worth the cost and money to pursue the matter, its now the tenant who has to decide whether or not they want to spend that time and money to pursue the landlord.
Let's say the rent was $2000 per month and the security deposit was $1800. The tenant breaks the lease, and the place was vacant for 1.5 months despite reasonable attempts to find a replacement tenant. In this scenario, the tenant breaking the lease costs the landlord $3000 but the security deposit would have covered only part, $1800, of that loss. To recover the rest of the $1200 in losses, the landlord would have to decide whether or not to go to small claims court to recover that amount. And, a lot of landlords decide its not worth it to pursue that money and therefore take a $1200 loss.
But, what if the rent was still $2000 and the security deposit was now $4000? The tenant breaks the lease, and the place was vacant for 1.5 months despite reasonable attempts to find a replacement tenant. In this scenario, however, the tenant breaking the lease costs still costs the landlord $3000 in losses but now the security deposit is large enough to cover that amount. You'd keep $3000 of that security deposit and return $1000 of it to the tenant. If the tenant is unhappy about that amount, its the tenant who has to decide whether or not to go to small claims court to recover more of their security deposit back. And, a lot of tenants will decide its not worth it to pursue that matter in court.
Even if you win in court, it seems like landlords have a hard time winning a judgement beyond the initial security deposit. In that case, shouldn't landlords ask for the highest amount for the security deposit that they can legally ask for?
Finally, a two month security deposit seems like it could be another screening tool. If a applicant has enough money to pay two months rent for the security deposit, then that person is probably a better applicant than somebody who can only afford to pay a month's rent for the security deposit.
What can go wrong if you ask for the legally maximum amount for the security deposit before the tenant moves in?