Should I Charge MOVE IN FEE or TRADITIONAL SECURITY DEPOSIT. HELP
Rental Property Investor · D.C · Member since 2019 · 501 posts · 102 votes
Should I Charge MOVE IN FEE or TRADITIONAL SECURITY DEPOSIT. HELP
Most Popular Reply
As an attorney and investor from Pennsylvania, my experience has been that any investor that has their stuff together uses an escrow account for security deposits. It takes minimal effort to set up and maintain. Most banks will have a product available to serve as an escrow account.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.
22 Replies
Don't know the rules in DC. We do not charge move-in fees. Security deposits here must be held in an escrow account. Talk to your bank about this.
- Rental Property Investor · D.C · Member since 2019 · 501 posts · 102 votes7y
Originally posted by @Jim K.:
Don't know the rules in DC. We do not charge move-in fees. Security deposits here must be held in an escrow account. Talk to your bank about this.
i invest in PA
Never ever heard of anyone holding a security deposit in an escrow account. EVER. but i do understand that is written law
- Rental Property Investor · D.C · Member since 2019 · 501 posts · 102 votes7y
Originally posted by @CJ Ashton:
I charge both. My move-in fee is usually fairly small. Refundable deposit is at least the amount of one month's rent, if not a couple hundred dollars more.
thinking about charging a big move in fee
Originally posted by @Charlie Moore:
Originally posted by @Jim K.:
Don't know the rules in DC. We do not charge move-in fees. Security deposits here must be held in an escrow account. Talk to your bank about this.
i invest in PA
Never ever heard of anyone holding a security deposit in an escrow account. EVER. but i do understand that is written law
Yep. And now you do know someone in PA who holds security deposits in an escrow account.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes7y
If you charge a fee, the tenant will know it's non-refundable and therefore they have no incentive to try and earn it back. A security deposit provides some leverage that the tenant will try to abide by the lease in order to earn it back.
Deposits should always be held in a separate account so you can easily account for it and don't accidentally spend it.
The DIY Landlord Book4.7247 Reviews - Rental Property Investor · D.C · Member since 2019 · 501 posts · 102 votes7y
Originally posted by @Nathan Gesner:
If you charge a fee, the tenant will know it's non-refundable and therefore they have no incentive to try and earn it back. A security deposit provides some leverage that the tenant will try to abide by the lease in order to earn it back.
Deposits should always be held in a separate account so you can easily account for it and don't accidentally spend it.
nathan how do i go about doing this? just set it up at a bank?
- Rental Property Investor · D.C · Member since 2019 · 501 posts · 102 votes7y
Originally posted by @Jim K.:
Originally posted by @Charlie Moore:
Originally posted by @Jim K.:
Don't know the rules in DC. We do not charge move-in fees. Security deposits here must be held in an escrow account. Talk to your bank about this.
i invest in PA
Never ever heard of anyone holding a security deposit in an escrow account. EVER. but i do understand that is written law
Yep. And now you do know someone in PA who holds security deposits in an escrow account.
LOLLLL!!!! But seriously, how many of your buddies do this? ( Investor friends )
I don't have all that many good friends in this business. I know one other local small mom and pop outfit investor like me who handles security deposits as I do. Not coincidentally, I consider that investor one of my mentors in this field.
Let me break this down further. Primarily, my wife and I acquire and rent out single-family properties in C/D class borderline areas. We self-manage and I do most of the maintenance work.
As I see things, the overwhelming reality of western PA in my rental market segment is that small outfits like ours are almost exclusively composed of greedy and stupid landlords who routinely lie to, steal from, and cheat their tenants as a matter of course. Most of these landlords also hate the business they're in, hate tenants, and hate themselves most of all. They tend to self-destruct quickly and thoroughly, usually as they concurrently fail as parents and spouses.
I see this is an enormous business opportunity for the likes of me. The main focus of my business strategy is to clearly differentiate my product and service from other local providers. That's pretty easy to do when your overall competition largely consists of people who have trouble understanding the long-term outcomes of the bad business decisions they make and execute.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes7y
@Charlie Moore as a private investor, you don't have to do anything fancy. Set up a checking account and savings account. Security deposit goes into the savings account where it's easy to keep an eye on it and avoid spending it. Rent goes into the checking account. Pay bills from the checking account. Take any money set aside for capex, insurance, taxes, and other "set-asides" and transfer that to savings. If you have any cash flow after paying the bills and setting aside funds for future expenses, you can either pull it out or (preferably) hold it for a future purchase in the checking account or in the savings account.
I prefer holding funds in the savings account, even money for future purchases. I only use the checking account for receiving rent and paying bills every month.
The DIY Landlord Book4.7247 Reviews As an attorney and investor from Pennsylvania, my experience has been that any investor that has their stuff together uses an escrow account for security deposits. It takes minimal effort to set up and maintain. Most banks will have a product available to serve as an escrow account.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.
- Rental Property Investor · D.C · Member since 2019 · 501 posts · 102 votes7y
Originally posted by @Chris K.:
As an attorney and investor from Pennsylvania, my experience has been that any investor that has their stuff together uses an escrow account for security deposits. It takes minimal effort to set up and maintain. Most banks will have a product available to serve as an escrow account.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.
Fully Taking Your Advice. You Are my New Attorney
- Rental Property Investor · D.C · Member since 2019 · 501 posts · 102 votes7y
Originally posted by @Jim K.:
I don't have all that many good friends in this business. I know one other local small mom and pop outfit investor like me who handles security deposits as I do. Not coincidentally, I consider that investor one of my mentors in this field.
Let me break this down further. Primarily, my wife and I acquire and rent out single-family properties in C/D class borderline areas. We self-manage and I do most of the maintenance work.
As I see things, the overwhelming reality of western PA in my rental market segment is that small outfits like ours are almost exclusively composed of greedy and stupid landlords who routinely lie to, steal from, and cheat their tenants as a matter of course. Most of these landlords also hate the business they're in, hate tenants, and hate themselves most of all. They tend to self-destruct quickly and thoroughly, usually as they concurrently fail as parents and spouses.
I see this is an enormous business opportunity for the likes of me. The main focus of my business strategy is to clearly differentiate my product and service from other local providers. That's pretty easy to do when your overall competition largely consists of people who have trouble understanding the long-term outcomes of the bad business decisions they make and execute.
Loved This Response.!
I like how you invest in urban areas, you seem to conduct yourself very professional. I work with strictly C CLASS and D class, self manage. I rarely follow every code or law, because NO other private landlords do, plus its hard to follow law word for word. Only thing i can see that im doing wrong, is holding the security deposit in a safe, instead of a bank. Most of my tenants never expect or ask for it in the BANK.
You don't have to worry about your tenants asking you.
When the hammer comes down on you in PA for not keeping the money in that account, it's going to be during small claims litigation with a tenant. The magistrate is going to ask you to document what bank the money is in and when the account was established. If you cannot produce that paperwork because the money is actually in your possession or sitting in your accounts or in a safe, that's when you'll wish you had established that account. But that's not the best clear and obvious reason to follow the law here. You can use the escrow account situation to your advantage in multiple ways. Here's my main one:
I have an escrow account for every tenant. I set up the account, put the money in it and mail a copy of the deposit documentation to the tenant (for their records). I know that for most if not all it's the first time they've ever seen that. The documentation is one of the ways I emphasize the quality of what I am providing is better versus what they could get elsewhere. If I renew the lease, I print out a new bank statement from the escrow account and send the tenant the new paperwork and a copy of the statement.
This way, every year, the tenant gets a reminder that tells them: "Your security deposit is still there and its yours and I'm not making money off it."
Every single tenant in America complains to their friends and coworkers about their landlord. That's human nature Every single tenant in America begrudges every penny of their security deposit. That's also human nature. You should be sensitive to these facts of life. Machiavelli put it best: "But above all things [the Prince] must keep his hands off the property of others, because men more quickly forget the death of their father than the loss of their inheritance."
If my tenants believe for any reason that I'm profiting off this money or the interest of this money in any way, that's a bad mark against me in the landlord-tenant relationship. That's the main reason I do what I do and show the evidence of it. If my tenants talk about this to other tenants and these people express approval that their landlord is honest, that's a good mark for me, and my tenants have feedback from third parties that they're getting value for money out of living in one of my properties.
You're running a business. You're marketing a service to your clients. You're trying to differentiate what you provide from what others provide. Something like this is a golden opportunity to do it. Ray Kroc built a whole empire out of realizing he could sell cheap crappy hamburgers as long as the johns in his hamburger joints were cleaner than the next guy's.
- Rental Property Investor · D.C · Member since 2019 · 501 posts · 102 votes7y
Originally posted by @Jim K.:
You don't have to worry about your tenants asking you.
When the hammer comes down on you in PA for not keeping the money in that account, it's going to be during small claims litigation with a tenant. The magistrate is going to ask you to document what bank the money is in and when the account was established. If you cannot produce that paperwork because the money is actually in your possession or sitting in your accounts or in a safe, that's when you'll wish you had established that account. But that's not the best clear and obvious reason to follow the law here. You can use the escrow account situation to your advantage in multiple ways. Here's my main one:
I have an escrow account for every tenant. I set up the account, put the money in it and mail a copy of the deposit documentation to the tenant (for their records). I know that for most if not all it's the first time they've ever seen that. The documentation is one of the ways I emphasize the quality of what I am providing is better versus what they could get elsewhere. If I renew the lease, I print out a new bank statement from the escrow account and send the tenant the new paperwork and a copy of the statement.
This way, every year, the tenant gets a reminder that tells them: "Your security deposit is still there and its yours and I'm not making money off it."
Every single tenant in America complains to their friends and coworkers about their landlord. That's human nature Every single tenant in America begrudges every penny of their security deposit. That's also human nature. You should be sensitive to these facts of life. Machiavelli put it best: "But above all things [the Prince] must keep his hands off the property of others, because men more quickly forget the death of their father than the loss of their inheritance."
If my tenants believe for any reason that I'm profiting off this money or the interest of this money in any way, that's a bad mark against me in the landlord-tenant relationship. That's the main reason I do what I do and show the evidence of it. If my tenants talk about this to other tenants and these people express approval that their landlord is honest, that's a good mark for me, and my tenants have feedback from third parties that they're getting value for money out of living in one of my properties.
You're running a business. You're marketing a service to your clients. You're trying to differentiate what you provide from what others provide. Something like this is a golden opportunity to do it. Ray Kroc built a whole empire out of realizing he could sell cheap crappy hamburgers as long as the johns in his hamburger joints were cleaner than the next guy's.
You sir, have never owned or worked in the Class C or the ghetto.
You are dismissed
Originally posted by @Charlie Moore:
Originally posted by @Jim K.:
You don't have to worry about your tenants asking you.
When the hammer comes down on you in PA for not keeping the money in that account, it's going to be during small claims litigation with a tenant. The magistrate is going to ask you to document what bank the money is in and when the account was established. If you cannot produce that paperwork because the money is actually in your possession or sitting in your accounts or in a safe, that's when you'll wish you had established that account. But that's not the best clear and obvious reason to follow the law here. You can use the escrow account situation to your advantage in multiple ways. Here's my main one:
I have an escrow account for every tenant. I set up the account, put the money in it and mail a copy of the deposit documentation to the tenant (for their records). I know that for most if not all it's the first time they've ever seen that. The documentation is one of the ways I emphasize the quality of what I am providing is better versus what they could get elsewhere. If I renew the lease, I print out a new bank statement from the escrow account and send the tenant the new paperwork and a copy of the statement.
This way, every year, the tenant gets a reminder that tells them: "Your security deposit is still there and its yours and I'm not making money off it."
Every single tenant in America complains to their friends and coworkers about their landlord. That's human nature Every single tenant in America begrudges every penny of their security deposit. That's also human nature. You should be sensitive to these facts of life. Machiavelli put it best: "But above all things [the Prince] must keep his hands off the property of others, because men more quickly forget the death of their father than the loss of their inheritance."
If my tenants believe for any reason that I'm profiting off this money or the interest of this money in any way, that's a bad mark against me in the landlord-tenant relationship. That's the main reason I do what I do and show the evidence of it. If my tenants talk about this to other tenants and these people express approval that their landlord is honest, that's a good mark for me, and my tenants have feedback from third parties that they're getting value for money out of living in one of my properties.
You're running a business. You're marketing a service to your clients. You're trying to differentiate what you provide from what others provide. Something like this is a golden opportunity to do it. Ray Kroc built a whole empire out of realizing he could sell cheap crappy hamburgers as long as the johns in his hamburger joints were cleaner than the next guy's.
You sir, have never owned or worked in the Class C or the ghetto.
You are dismissed
My first reaction is to burst out laughing. My second is to wonder what leads you to make this statement.
- 7yRachel JacobsonPro MemberRental Property Investor · Member since 2019 · 41 posts · 53 votes
Check your local laws. Some states (like California) don't allow non-refundable move-in fees. I agree with Nathan G.'s statement about how charging a security deposit gives tenants incentive to earn it back by taking good care of the property. A move-in fee is already non-refundable, so they may not be as careful.
- Rental Property Investor · D.C · Member since 2019 · 501 posts · 102 votes7y
Originally posted by @Scott P.:
In 20+ years I had never heard of a "move-in fee" until joining BiggerPockets a couple of months ago.
in 5 years... i have never heard of any landlord keeping a deposit in an "ESCROW ACCOUNT "
- Rental Property Investor · D.C · Member since 2019 · 501 posts · 102 votes7y
Originally posted by @Rachel Jacobson:
Check your local laws. Some states (like California) don't allow non-refundable move-in fees. I agree with Nathan G.'s statement about how charging a security deposit gives tenants incentive to earn it back by taking good care of the property. A move-in fee is already non-refundable, so they may not be as careful.
Is setting up an escrow account ... free and easy?
- Rental Property Investor · D.C · Member since 2019 · 501 posts · 102 votes7y
Originally posted by @Chris K.:
As an attorney and investor from Pennsylvania, my experience has been that any investor that has their stuff together uses an escrow account for security deposits. It takes minimal effort to set up and maintain. Most banks will have a product available to serve as an escrow account.
Disclaimer: While I’m an attorney licensed to practice in PA, I’m not your attorney. What I wrote above does not create an attorney/client relationship between us. I wrote the above for informational purposes. Do not rely on it for legal advice. Always consult with your attorney before you rely on the above information.
How expensive is it to open these accounts
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