I'm closing on my first investment property in two weeks. Thanks for all the help leading up to this.
Question: I'm inheriting tenants in one of the units of the building. The seller has offered to transfer the security deposits to me. After researching and reading a ton of info about the difficulty landlords in Chicago have re: deposits, I'm hesitant to accept it. Im considering returning the deposit to the tenant and hoping for the best, as I don't feel comfortable asking for a "move-in fee" from someone who is obviously already moved in. I cant find any definitive answer as to whether or not the security deposit interest rule applies to owner occupied 2-4 flat properties (like the one I'm buying). I've heard it both ways and I'd like to be able to hold on to the deposit, but its not worth it to me if I will have legal issues down the line. Is anyone for sure for sure?
Thanks very much for reading.
P.S. Info from this website is the reason I am closing on this property. Im super grateful.
Hi @Ryan Chorbagian Congrats on closing on a building soon!
I will advice you to hold on the deposits. Everything will be all right if you deposit them in a separate, dedicated security deposit account and you don't keep them fully or partially when the tenant moves out. Also, make sure you look in the Chicago Ordinance to see what has been the interest the year or years you hold the deposit and pay it. For 2014, the interest rate that is required to be paid is 0.013. For $1000 security deposit that's only $13 dollars.
Giving the tenants the deposit money back, will be plain and simple... strange. Your tenants will get the fact that you are afraid of them.
Just use move in fees from now on with new tenants.
@Ryan Chorbagian - If you are an owner occupant you are exempt from the RLTO
Rental of the following dwelling units shall not be governed by this chapter, unless the rental agreement thereof is created to avoid the application of this chapter:
(a) Dwelling units in owner-occupied buildings containing six units or less; provided, however, that the provisions of Section 5-12-160 shall apply to every rented dwelling unit in such buildings within the City of Chicago;
I suggest you read the RLTO summary anyway
I am not exempt from the summary and still take security deposits
Thanks @Brie Schmidt
When you take deposits, do you keep them i a dedicated account?
I'm curious what happens when I move out of this property. If all goes according to plan, I wont be in the residence more than 1.5 years. I'm assuming the law would then take effect and maybe retroactively?
Thanks Lumi. Your point about the strangeness of returning the deposit is well taken. I'll scratch that idea.
I would also make sure that the current owner transfers the deposit along with accrued interest. Be sure the current owner has paid the tenants their security interest each year.
I was considering converting Chicago security deposits to rent to avoid RLTO. First, as an owner occupant you are exempt. But separately, I've been told by counsel that conversion or return of a security deposit doesn't necessarily get you off the hook for RLTO for a current tenant lease if you have not fully complied. You have to also have an agreement to extinguish any potential security deposit liability.
Now I do last month rent or move in fee, depending on the situation.
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