How to handle security deposits for rent per room?

Question

I'm considering renting a property per room in order to maximize the rental income. It's a large single family house, 5 bedrooms, 2 full baths, kitchen on main level and in basement. However, I've never done a rooming house before and wanted to know the best way to handle security deposits and how they may be applied to damages in the future. I live in CT. Thank you in advance for your responses.

Nathan Gesner · Answer

My deposit policy is a minimum of one month's rent. If the house rents for $1,000 then the deposit is at least $1,000. For higher-risk tenants, I charge $1,500 or $2,000.

I'm guessing this is for college students which means:

1. No credit or financial history

2. No rental history

3. No employment history

4. No maturity

5. No relationships so they will not feel obligated to the other roommates

These are high-risk tenants. No proven track record, living on their own for the first time, immature, bills being paid by mom and dad or borrowed funds, etc. I assume you are using cosigners but you still need a higher deposit to mitigate the risk.

I would consider a double deposit and then split it among the five tenants. If the house would ordinarily rent for $2,000 a month, that comes to $400 per room but you are probably including utilities, TV, internet, etc. So maybe it's $500 per room. I would consider $750 - $1,000 per room as a deposit.

This is all based on assumptions because I don't know your actual plans, your experience level, the quality of students (Harvard Med vs. Community College), and many other factors. But I hope it helps.

Wilbert Gonzalez · Answer

Thank you @Nicole Marshall and @Nathan G. for the responses. This property is in close proximity to Yale University, Albertus Magnus College, and Quinnipiac University. However, in my opinion a student is a student and I remember my attitude when I was an undergrad. I probably wouldn't have rented to myself. You're right Nathan, it will most likely be students with no rental history. I'm experienced in screening tenants, having co-signers, etc. But I've never rented a rooming house so Nicole you raised the same questions I had in mind. What happens to damage in common areas? How does one go about applying a portion of the security deposit to those damages? Do you take an equal share from everyone's deposit to handle the damage and then let them figure it out? I don't intent on becoming an investigator just to figure out who has done what to the property. I'd prefer some kind of pool to draw from if and when the damage is caused. I will admit I haven't sought legal advice on the matter yet. If I do get concrete answers I will share. Thanks again for your responses.

Nicole Marshall · Answer

It sounds like you won't be living in the property. If you won't be living in the house and renting out all of the rooms, it's hard to say. Damage in individual bedrooms is easy enough, but you won't know who left that huge hole in the wall in the living room. You might consider just taking the deposit and only applying it to damage in individual areas, not common areas, unless you can prove who damaged what. I'm really not sure about the legality of nanny cams in common areas, but that might be something you'd want to look into.