Holding Deposit for prospective tenant for 1 month, good idea?

Question

Newbie here, 1st rental listed but have done rehabs/flips before. I have an interested tenant, they pass qualifications on all standards except background check which isn't complete yet pending formal application (using Cozy.) However, their current lease isn't up until end of Feb 2020. My single family rental is move-in ready now available Feb 1. Would it make sense to have them pay a holding deposit (if so how much?) to hold the property for a month? It was my understanding that holding beyond 2 weeks w/o a security deposit etc might not be smart but what if I was able to charge a "holding deposit" for month of Feb that would cover the mortgage etc if they walk and don't move forward. I would apply "holding deposit" to security deposit assuming they sign lease. Any thoughts or suggestions here? Anyone done this and are there good forms out there for this? I'm in western suburbs of Chicago if that's helpful.

Nathan Gesner · Answer

At least you're thinking it through, Jessica. Well done!

Once the application is approved, I will hold a rental for up to one week before I expect the Tenant to start paying rent. I will only negotiate a longer hold time if they are a really, really strong applicant. I would never hold a home for more than 30 days. My preference is to meet somewhere in the middle like 14 - 20 days. A $1,000 rental sitting empty for a month can easily cost you $1,200 in loss which is the same as reducing your rent 10%. That's a big hit.

The holding deposit is just that: a deposit to hold the home until a designated move-in date. I charge the same amount I would normally charge them for a security deposit. If they lease the rental, then you convert the holding deposit into the security deposit. If they cancel, for any reason, they forfeit the holding deposit and I put the unit back on the market immediately. This is in writing and signed by both parties. You can find sample holding agreements with a Google search or contact me directly and I'll share mine.

Marc Winter · Answer

To add on to the already good responses you've received, we will start a lease on any day of the month. We charge a full month's rent regardless of the date and pro-rate the rent on the 2nd month. The 3rd month, all is back to normal charges.

Example: lease starts on the 15th. Tenant pays a full month on lease start, and rent is due on the first. The 2nd month, the tenant will be charged 1/2 month's rent (prorated for the days not used the first month) and on the 3rd month in, they go back to full rent thereon out.

We will not let anyone move in without a full month's deposit and full month's rent up front, nor will we hold a rental for a tenant for more than a week or 10 days--they will understand that in the meantime, we will continue showing, and if they are not ready at the end of the week, we will start accepting other applicant/s.

Gloria Wiekert · Answer

Hi @Jessica Markley! I agree with @Andrew B. that the language should be a fee, not a deposit. I'm not fully confident on the tenant laws in DuPage Co, but Cook Co and Chicago are very strict on how landlords handle deposits, making it very easy to accidentally open yourself up to lawsuits. The "holding" concept is new to me, I like it as an alternative to signing a lease, especially if they seem wishy-washy. My process is similar to what @Marc Winter outlined: Typically, I collect the first month's rent at lease signing, not on the first, so even if they're overlapping with an old lease I have the rent. When offering a lease signing to the approved applicant, I gently but firmly let them know that I will continue to market and show the unit until we have a signed lease, that way I don't lose other potential renters and it puts a little pressure on them to sign if they're serious.

Anthony Wick · Answer

@Jessica Markley I basically do what Nathan does. But my verbiage on the holding fee and conversion to a security deposit is in my actual lease. I would have them sign said lease right now. If they then cancel and do not move in, you keep the holding fee, even if you find a new tenant right away. If it takes you longer to find a tenant, they are also responsible for the rent until a new tenant is located (if your losses are more than the holding fee). Of note: I have never had somebody decide not to rent and forfeit their holding fee after paying the holding fee and signing the lease.

Michael Robbins · Answer

I will not hold a home vacant for longer than two weeks from the time of an approved application. The tenant does not physically have to move in but their lease should start. In my case I try to keep it simple and charge a move in amount of the prorated rent plus the security deposit (other charges may apply depending).

Jessica Markley · Answer

Thank you for the response! Much appreciated!

Holding Deposit for prospective tenant for 1 month, good idea?

Holding Deposit for prospective tenant for 1 month, good idea?

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