To get a security deposit or not?

Question

I've read and listened to several stories of landlords just forgoing the traditional security deposit altogether. They claim the hassle and potential legal troubles are just not worth it to them. As a new landlord, this seems odd to me...or at least very out of the normal. Does anyone else do something like this? I didnt think taking a deposit was that much trouble. I know you hold it in Trust and have to give it back in X number of days but thats about it. Is there anything big I'm missing that I should consider NOT taking a deposit? I'm in WA btw.

Ben Wilkins · Answer

A security deposit helps invest the tenant in the property - if they have money "on the line" so to speak, they're more likely to take a little better care of the place. The mention of "security deposit" and "application fee" also helps weed out the tenants I don't want to deal with - a lot of them flee like cockroaches before the sunlight at those terms

Bradley A. · Answer

While most investors will charge the security deposit, many landlords we've spoken to the Chicago area are trending toward non-refundable move-in fees, higher than typical pet fees, and higher than typical application fees.

Security deposit laws are rather burdensome in Chicago, so the non-refundable fees can be a bit easier to manage and lower risk when paired with proper background and credit checks and vigorous tenant screening.

Jesse M. · Answer

It's a PITA here in Chicago so I recently decided to go without it and just charge a non-refundable move-in fee.

Pat L. · Answer

We insist on it.

We looked at a property last night & the security deposit would not be anywhere near enough to cover the damages & eviction costs the low-life tenants inflicted. BUT it relieves some of the pain.

Account Closed · Answer

I would charge 3 times rent security if the market would bear it. Crazy to charge nothing.

Nik Moushon · Answer

Thanks Steve. Not having money for 3x rent make sense. Not sure if I am remembering right but I thought I had to do that back in Chicago.

Steve Vaughan · Answer

I've just found a deposit similar to 1 month's rent to be custom, so expected.  It also provides me enough security in my mind that they have skin in the deal and want it back.  I've lost a few times but not by much.  I'll ask about  1.3x rent for places with a yard.

I've only asked for a last month as well a couple times with brand new or higher risk barely made it applicants.  Most just can't afford rent x3 to move-in.  They wont tell you that, they just won't apply and/or go dark.

Lynn McGeein · Answer

There are some states or localities where it's onerous to maintain a deposit.  In Annapolis, for instance, we had to pay them interest, even though we made no interest in the holding account, and the tenant has a right to sue for 3 times any disputed amount, so they actually have an incentive to dispute charges if there's any question at all.  Some landlords feel they have to compete with the large apartment complexes that offer low to zero deposit, but we don't have access to the insurance they have that covers them if a tenant destroys a unit.

We actually have raised our overall deposit requirements nearer the high-end of state limits once we renovate a unit even though it does detract some applicants because I'd rather have it sitting in an account than have to fight for it later as it's almost impossible to get it from them later, even if you win in court.  We don't collect as much security deposit on units that are more dated.

Carolyn Fuller · Answer

I think it depends upon in what state your rentals are.

Here in Massachusetts, the laws governing security deposits ensure we handle the deposit as if it is our tenant's money and not our own money. And if we try to withhold any of the deposit, the burden is on us to both prove we followed the letter of the law and that the damage done to the apartment warrants our withholding the deposit.

Following the letter of the law requires, what I consider to be, a lot of paperwork and manual steps, with absolutely not a dime to show for it. The only reason I collect a security deposit on one of my rentals is that it has expensive furnishings and is in a college town. I don't want to discriminate against college students but, in the past when we rented this unit to college students, they were fairly negligent in their treatment of our property. The security deposit encourages them to be a bit more responsible with the furnishings. Also, since we started requesting a security deposit on this unit, no college students have applied. So, yes, I guess it also acts as a deterrent starting as early as the application.

To get a security deposit or not?

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