Higher security deposit for more tenants

6 Replies

Standard practice seems to be a fixed deposit amount per unit, regardless of the number of tenants. While there are other factors and exceptions, more people generally can cause more damage than fewer people. 

I always see landlords asking for additional “pet deposits,” operating under the notion that pets are potentially more destructive than people  

Applying that logic to a $1000/month rental unit that can accommodate 4 people, would it make sense to set the security deposit to $1000 for 1-2 people, and $2000 for 3-4 people?

I don’t necessarily agree that more people cause more damage. More wear and tear maybe on things like carpet, but you can’t make security deposit deductions for wear and tear so I’m not sure a larger deposit for more people would be that beneficial. 

The bigger argument against doing what you’re suggesting though, in my opinion, would be that you could run the risk of violating Fair Housing laws. 

Suppose you had two single guys apply to rent your $1000 property. In your example, they’d have to pay $1000 deposit. However, if a married couple with 2 kids applied to rent the same property, they’d have to pay a deposit double that amount because they have 4 people. That would likely be considered discrimination based on familial status. 

To add to the valuable advice provided by Kyle regarding Fair Housing issues some states also limit the amount of security deposit you can collect regardless of occupants or other factors. In my state it happens to be no more than twice the monthly rent.

I collect a deposit based on increased risk. I determine that risk during the application process using a score sheet that assesses employment, credit, and rental history. It's objective and fair.

Where's the risk in renting to four people? It's not the number of people; it's their relationship with each other. A married couple is far more likely to remain together and stable for the term of the lease than two friends or two co-workers. This is especially true when you have three or more unrelated people. In my experience, three or more unrelated people are far more likely to have late rent, increased damages, lease violations, and early terminations. Not to mention the inter-personal relationship drama.

If three or more unrelated people want to rent from me, I require each individual to earn at least 2x the rent. This step alone eliminates the vast majority of applicants and reduces the additional risk.

Originally posted by @Nathan G. :

If three or more unrelated people want to rent from me, I require each individual to earn at least 2x the rent. This step alone eliminates the vast majority of applicants and reduces the additional risk.

Do you mean 2x the total rent or 2x their share of the rent?

Could having stricter earnings requirements for different parties present any Fair Housing issues?

@Angelo R. Fair Housing protects against "familial status" which specifically refers to children. Married and unmarried are not a protected class. I would also point out there is a legitimate reason for holding unrelated people to a higher standard because they present a significantly higher risk.

There's no such thing as "their share" of the rent. Every tenant is 100% responsible for the full amount so I want each applicant to earn 2x the monthly rent. Here's an example of why:

Two couples (both unmarried) and a single person (five people total) wanted to rent a 5bed/3bath house. Their combined income met the requirement of 3x the rent. However, one person earned almost $3,000 while two others earned less than $800  a month and the last two were unemployed and had been for a long time. What would happen if they moved in together and the main income-earner lost his job, or moved to another city, or broke up with his girlfriend, or decided to leave because he was tired of paying the bill for his free-loading friends? The remaining four individuals had a combined income of 1x the rent!

In my experience, friends and co-workers don't last very long when they move in together. About 80% of them have some sort of falling out or a job transfer or something. The remaining tenant(s) can't afford the rent and everything falls apart. It dramatically increases the risk of income loss and my workload. Dating couples have a higher rate of problems than married but it's not significant enough to worry about it. It's only when I have three or more unrelated that the risk is significant enough to require attention.

If three unrelated rent a home for $1,000 a month I would want each of them to earn 2x the rent or $2,000. If one tenant moves out unannounced, the two remaining tenants will still make a combined 4x the rent and the home is still affordable.

I appreciate all the replies!

Nathan, in your example of 5 people are we talking about one lease including all tenants? Or one separate lease for each couple and another separate lease for the single person? 

To my original question about security deposits, if the unrelated tenants don’t meet the 2x income, would it then be OK to ask for a higher deposit as long as it’s in accordance with Fair Housing? Or would you pass on this scenario altogether?