Get deposit with application?

11 Replies

When a potential tenant turns in a application how much of a deposit should I get? If accepted it will be applied to first month rent or how does everyone else do it?  I also don't charge a fee which I tend to believe I should.

I never use to get a deposit but I am finding that I am only hurting myself by allowing that tenant to continue to shop for homes while there application is under review.

Thanks

The applicant hasn't qualified yet to give you a deposit.  Once they have met your criteria and you have done a credit check on them and they have been approved in all areas, you will then tell them they have qualified and you would be happy to rent them your home.

You will tell them that you will sign the lease on such and such a date and all utilities should be placed in their names on or before the day the lease is signed. 

You will also tell them that they will need to give you a $100 deposit that will be applied to the move in fee prior to signing of the lease.  This will pay for the cost of advertising in case they change their mind.  

If they do not put the utilities in their name on or before the signing of the lease, or fail to sign the lease on the given lease signing date, then they no longer qualify for the home and will forfeit their $100 holding deposit, and you will rent the home to the next qualified applicant that had applied.

Nancy Neville

Just make sure you tell them in writing how their holding deposit will be handled.  Not just verbally, have them acknowledge with their signature.  

Also, include under what conditions you'll keep holding deposit as well as what happens to this money if they do rent from you.  Will it go towards rent or not?

As far as taking a deposit before approval, I've done it both ways.  In locations where it's hard to find a good tenant I like, I'll take a deposit.  Usually a check (separate from my application fee).  I won't cash it until they're fully vetted.  

If they don't qualify, I'll just return their check.  If they pass screening I deposit the check.  That's the final test.  If the check bounces, I won't rent to them.

I've never had this issue. I usually review the application and then ask the tenant if they are ready to proceed with the background check. Typically when tenants pay for the background check they are committed to renting your property.

While the background check fee might seem negligible to most people, it's more of a physiological sunk cost. Most people think, "Well I spent X, I can't let that money go to waste so I better follow through." 

I wouldn't accept a deposit in advance because the legalities of claiming a deposit if the tenant moves into another house are murky.

You should be charging a fee t apply- how much does it cost you to run a background check?  My cost is $29.45, I charge $30.  I am not making money here but I am not out anything but my time.

Once all adults pass the background check, ask for a holding deposit (I use half a month's rent) and get the lease signed.  The holding deposit will be deducted from the move in costs.  If I can't rent to them for some reason, the deposit is returned.  If they change their minds about renting, I keep the deposit as compensation for having to put the apartment back on the market.  That has only happened to me once due to a break up of the couple that planned to move in.  

I agree with the way Tony Christian above handles accepted applicants. To add to that it depends on what state you live in as to the amount of deposit you can collect. I live in CA and we are allowed to collect a deposit twice the rent for unfurnished homes and three times the rent for furnished. If you collect first and last months rent this does not count towards the deposit so you can collect up to twice the deposit still. I ask for first months rent in full, no matter the move in date and a deposit equal to one months rent. I do annual inspections to the property to ensure condition.
Originally posted by @Jordan Thibodeau :

... Typically when tenants pay for the background check they are committed to renting your property.

While the background check fee might seem negligible to most people, it's more of a physiological sunk cost. Most people think, "Well I spent X, I can't let that money go to waste so I better follow through." 

...

Although that is typical, I have had some applicants who have paid for several applications at different places simultaneously, in the hopes that one will take them. When I called one of these to tell them they were not getting the place, the reply was "That's OK because we got accepted at [another address]." This one had nine eviction filings BTW - you remember stuff like that.

The reason they do that is simple - they must move by a certain date, either lease ending or eviction pending or friends / family have had enough freeloading, so they have to find some landlord that will rent to them. If they waited for rejection before moving along to the next, they might miss out on the next (taken by somebody else). And they already suspect that they will get rejected a number of times - but they only need one to accept them. 

@Steve Babiak @Audrey Wardwell Nancy Neville @Tony Christian
What are you all charging for the application deposit to hold the property while the application is being run? In Texas I believe you have 7 days to approve/deny the applicant then they have 2 days thereafter to sign a lease. Based on those number of days I was thinking 25% of one months rent since that's the approximate days. Someone earlier suggested $100 Which seemed low. Thoughts on amount?

Thanks for replies and feedback.

Regards
Steven
Berkley Properties

@Steven Anderson - since I am not holding the property for anybody while I process any application, I don't charge anything at that point other than the application fee. Charging a deposit above the application fee is a tactic that some use to keep the applicant from looking elsewhere - an applicant only has so much money they can pay toward the holding deposits. Once I approve an application, that is when I expect to be paid to hold the unit for the approved applicant.

@Steve Babiak I view this as an option for the prospective tenant, not a requirement. If they want to hold the property it requires them to financially make a commitment. It's akin to earnest money in a purchase and sale transaction but it's at their option. I think it also helps them demonstrate their comfort in qualification and interest in the property. Perhaps it's only performed in a white hot rental market. 

Originally posted by @Jimmy S. :

When a potential tenant turns in a application how much of a deposit should I get? If accepted it will be applied to first month rent or how does everyone else do it?  I also don't charge a fee which I tend to believe I should.

I never use to get a deposit but I am finding that I am only hurting myself by allowing that tenant to continue to shop for homes while there application is under review.

Thanks

 Jimmy this is our process and I think it works pretty well.

  • We collect application fee and run tenants background. We DO NOT collect a deposit at this time. Application fee is nonrefundable so if the tenant is denied there is no other steps such as giving back their deposit.
  • If the tenant is approved we collect a nonrefundable deposit to hold the property. We will hold a property for up to 30 days. We charge the tenant the full security deposit for 30 days or half of it for 15 days.
  • On day 15 or 30 tenant comes in with 1st months rent and (if applicable) the rest of the security deposit, we sign lease and issue keys.

Medium holton wise property group logo jpegJames Wise, The Holton Wise Property Group | [email protected] | 216‑661‑6633 | http://www.HoltonWisePropertyGroup.com | Podcast Guest on Show #127