Do you collect additional security deposit at renewal

Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes

So this is just a throw it out to the world conversation.

Say you have an annual tenant and they were renting for 700 a month, and your security deposit is also equal to 1 months rent. When you renew that person for the next year and say you increase the rent to 725, do you also collect an additional 25 in security deposit?

I bring this up because I just made an offer on a property and one of the tenants has been around for a while and their security deposit is 400 dollars and the rent is 800. It isn’t just one that was like five of the tenants.

Also if you collect last months rent if you collect it and raise the rent after a year do you collect the difference so they always have the last months rent available?

If you do is there any pushback from the tenants?

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Nathan GesnerBusiness Member

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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

Originally posted by @Account Closed:

So this is just a throw it out to the world conversation.

As a professional property manager, I would not increase the deposit or last month's rent for a $25 increase. However, you mention the tenant has increased from $400 to $800. In that case, the correct thing to do is require an increase to the deposit and to last month's rent because that is a significant amount.

Personally, I would not renew without the increase. If the tenant is a good one that I want to keep, I would probably offer a payment plan that allows them to increase it over a period of time. However, I do not like payment plans longer than 3-4 months.

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Anthony Hurlburt
Salt Lake City, UT · Member since 2016 · 199 posts · 190 votes
6y
I don't know anybody that does this.
1 Reply
Jacob Sampson
Investor · Topeka, KS · Member since 2015 · 1k+ posts · 1k+ votes
6y
I don't do it.
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Karen MargraveBusiness Member
Moderator
Realtor, General Contractor, and Developer · Redding, CA · Member since 2009 · 7k+ posts · 4k+ votes
6y
On your example, I've never heard anyone that does that. In CA you aren't allowed to charge for last month, you can charge a security deposit that must be refunded unless there are damages, then you can charge for actual damages.
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Domenick T.
Investor · Springfield , NJ · Member since 2017 · 192 posts · 93 votes
6y
@Eric C.
Getting an extra $25 in the $4k security deposit account is just an insult to good tenants in my opinion.
I would consider it if I inherited tenants who didn’t have an appropriate amount in the account already.
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Llewelyn A.
Investor / Broker · Brooklyn, NY · Member since 2016 · 665 posts · 1k+ votes
6y
@Account Closed

Hi Eric.

In regards to moving up the Security Deposit to match the Rent, I have been doing this for 21 Years.

I have a tenant that has been with me for 21 years. Rents have moved up about 4 times her original rent here in NYC.

If I never raised her security deposit, it would be ridiculous to have only 1/4 of the Rent for a Security Deposit in case of property damage should she leave. That wouldn't even pay for a replacement of a damaged appliance!

I guess in localities where the rent barely changes this seems like an acceptable Idea NOT to raise security deposits to match the rents.

Currently, I have 30 apts, 65 tenants in 10 buildings. I have had ZERO complaints on renewal to pay an increase in the security deposit to match the rent.

From the previous comments, it almost seems that this is a rare request.

I'll be curious why other Landlords don't do it? The Security Deposit equals the Rent.

Maybe the previous Landlord just wasn't experience, didn't raise the rent and the tenants would be upset.

If that's the case, then you may need to accommodate the current tenants and start this policy of raising Security Deposits to match rent when you replace each tenant.
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Jason Nelson
Realtor · Lincoln, NE · Member since 2017 · 22 posts · 5 votes
6y
@Eric C. I’m not a lawyer nor claim to be but not sure that’s legal
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Jennifer T.Pro Member
Investor · New Orleans, LA · Member since 2014 · 1k+ posts · 944 votes
6y
I generally don't, because it usually isn't enough of a difference to matter that much.
However, I did have an inherited tenant who had only been required to pay a $300 security deposit on her $1,125/month rent. She was on Section 8 and, at the time, they paid 100% of her rent. So I let it slide. But I shouldn't have. Because, in her last year with me, her portion was raised to over $700. I know she couldn't have come up with it all at once but, hindsight being 20/20, I wish I'd talked to her and S8 about her paying the SD difference over time back in the beginning.
Long story short, she was my tenant for 3 years and then I finally had to give her a 30-Day Notice to Vacate (actually it was 6 weeks) because she was always a PITA to deal with. For example, would pay rent every month, but it was always late and on her time table. We were constantly having to post 5 Day Pay or quit notices. She didn't comply with the Notice to Vacate and I ended up having to evict her anyway. Pfftt, she showed through her actions she didn't care about that 300 bucks. But she might have if it had been $1,125.
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Peter TverdovBusiness Member
Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
6y
We stopped doing that. 1.5x the rent is plenty of coverage in 99% of cases.
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Nik Corbaxhi
Rental Property Investor · Stratford, CT · Member since 2019 · 154 posts · 115 votes
6y
@Account Closed, there is nothing wrong with you increasing the security deposit to match the rent, if the rent goes up. Every time a contract ends, think of it as a new start, draw up the new contract with the new price and deposit. It is different if you and the tenant have built a relationship over time and if the increase is non-significant ($25-50), then I would agree with some of the suggestions here. However, if overtime your rent goes from $400 to $800, there is no reason why the new deposit should not be $800.
Same concept with last month's rent. Ride out the current contract, draw the new contract with the new terms and pricing, including last months rent, and execute.
if I were to guess, you are not really renewing contracts but just riding it month by month, hence into the current situation where you dont know when and where to increase sec dep./address the last month's rent.
Hope this helps!
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Account Closed
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Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes
6y
@Nik Corbaxhi, @Peter Tverdov, @Jennifer T., @Jason Nelson, @Llewelyn A., @Domenick T., @Karen Margrave, @Jacob Sampson, @Anthony Hurlburt.
So this was really a discussion question to spark conversation.
I currently only do annual leases and charge first, last, and security (one month rent) for move in. I also take the increase in rent as additional money for last month and security deposit at renewal.
Yes it is perfectly legal in my state.
It was just to start a conversation about best practices. Looks like some People do and some don’t. Looks like California doesn’t allow for last months rent (bad business in my area not to accept require that).
The question came up as I was making an offer on a 20 unit where rents were at 750-800 a month and long term tenants not only had no last month rent on deposit but the security deposit was 400-450.
Everything is a learning experience in my opinion and when I saw that it made me wonder what other people were doing.
My logic is limiting my exposure to risk while keeping good tenants. Currently this year I have 97.3% occupancy Rate with a 95% renewal rate for an additional year. While I’m not killing it by any means and my units aren’t going to be the sole thing getting me over the finish line to FIRE. It’s built systems that allow me to expand to larger properties.
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
6y
Originally posted by @Account Closed:
So this is just a throw it out to the world conversation.

Say you have an annual tenant and they were renting for 700 a month, and your security deposit is also equal to 1 months rent. When you renew that person for the next year and say you increase the rent to 725, do you also collect an additional 25 in security deposit?

I bring this up because I just made an offer on a property and one of the tenants has been around for a while and their security deposit is 400 dollars and the rent is 800. It isn’t just one that was like five of the tenants.

Also if you collect last months rent if you collect it and raise the rent after a year do you collect the difference so they always have the last months rent available?

If you do is there any pushback from the tenants?
As a professional property manager, I would not increase the deposit or last month's rent for a $25 increase. However, you mention the tenant has increased from $400 to $800. In that case, the correct thing to do is require an increase to the deposit and to last month's rent because that is a significant amount.
Personally, I would not renew without the increase. If the tenant is a good one that I want to keep, I would probably offer a payment plan that allows them to increase it over a period of time. However, I do not like payment plans longer than 3-4 months.

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