Los Angeles, CA · Member since 2013 · 555 posts · 261 votes
Most rentals in my area only charge security deposit equal to one month rent. They don't collect last month rent up front either.
Renters in my area have taken this for granted, and some are boggled by why I charge 1.5x rent.
1x rent is never enough. Once back rent is deducted, you have nothing left for damages.
If you're one of those who collects only one month security, what's stopping you from collecting more?
Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
13y
Depends on what neighborhoods your home is in and what are the typical tenants. In a working class neighborhood it would be difficult for many people to have 2 months rent to put down on a deposit. Realistically if you have a $50K house and charge 800/month in rent, 2 months rent is 3.2%. For 3.5% down they could get a FHA loan and buy the place and pay less than half in mortgage! There is a reason they are renters in the first place!
Property Manager · Big Bear Lake, CA · Member since 2013 · 585 posts · 330 votes
13y
Hi Mike,
I always collect 1.5 x the rent as a security deposit and twice the rent if they have pets. I never have problems with this. You are right that if they don't pay the last month's rent, then you have no money left over for repairs. So, 1 month is not enough of a security deposit.
Just so you know, in California you can't collect last month's rent when they move in.
Los Angeles, CA · Member since 2013 · 555 posts · 261 votes
13y
I never said it was illegal to ask for more than 1x.
In california, we can ask for 2 months for unfurnished, 3 months for furnished.
But I see many landlords in my area just ask for 1x rent for security deposit.
I'm just saying that anyone who does that is not providing himself enough security, and I wonder what their reasoning is for not demanding more security.
Investor · Milpitas, CA · Member since 2013 · 95 posts · 12 votes
13y
My PM only collected 1 months rent and an additional pet deposit. The reasoning was realistically we aren't expecting them to skip the rent, the vetting process prevents those types of tenants, so we are only concerned with repairs when the tenants leave. That being said I'm not sold on my PM so take all this with a grain of salt.
Virtual Assistant · Augusta, GA · Member since 2013 · 29 posts · 7 votes
13y
You also have to look at what the market yields. If you are the only person in your market asking 1.5x rent upfront, then those tenants are going to go somewhere else. In my opinion, it's not worth my property sitting an extra month to wait on the one tenant who is willing to pay that when I have screened and found other quality tenants.
Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
13y
Depends on what neighborhoods your home is in and what are the typical tenants. In a working class neighborhood it would be difficult for many people to have 2 months rent to put down on a deposit. Realistically if you have a $50K house and charge 800/month in rent, 2 months rent is 3.2%. For 3.5% down they could get a FHA loan and buy the place and pay less than half in mortgage! There is a reason they are renters in the first place!
Cincinnati, OH · Member since 2013 · 292 posts · 81 votes
13y
Depends on your area. Low income renters can have a hard time finding and tying up 2x deposit.
If they go into the last month with the intention of not paying, you should post & file for UD without delay. If you're fortunate enough to live in a jurisdiction that moves quickly, you can get it the whole thing done before the month's over. That's sometimes enough of a threat to get your rent.
If they don't take it seriously - accompany the 3 day with a note explaining how the consequences will follow them for a long time to come. A quick google will find some good sample letters.
Los Angeles, CA · Member since 2013 · 555 posts · 261 votes
13y
Originally posted by ANISH TOLIA:
Depends on what neighborhoods your home is in and what are the typical tenants. In a working class neighborhood it would be difficult for many people to have 2 months rent to put down on a deposit. Realistically if you have a $50K house and charge 800/month in rent, 2 months rent is 3.2%. For 3.5% down they could get a FHA loan and buy the place and pay less than half in mortgage! There is a reason they are renters in the first place!
If only it were that easy for people to get FHA loans here.
Here, a house like mine has a median price of $400,000, and rent is $2000.
They would need a $14000 down payment for FHA.
I find it hard to believe that families get by without having $5000-6000 saved up to pay for first month + security.
I would expect the typical family in my area to have at least $10k saved up if they're renting $2000/month
Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
13y
Because I'd be reducing my potential tenant pool. Many people just don't have the security deposit limit (2 months' rent in NC) that I'm allowed to collect, as they have to wait to get it back from their last rental. It's always a pain for tenants to get the extra money to pay the security deposit for a new place, then fight to get it back from the other place. You'd be surprised how many people still try to keep deposits, but tenants know all about it. I know because both my son and daughter have rented apartments for a few years, and my husband and I had to rent when we moved for work. Even when they signed off that exit inspection was fine, it was still a problem. My daughter's first landlord said something about his having a heart attack so couldn't get it back to her. I had to write him a letter threatening to sue before he gave it back, 3 months later. In the short-term complex my husband and I rented, they only charged a $300 deposit, and we never got that back, even though our exit inspection was clean. I fought them for over a year. They said I owed them imaginary fees that weren't even in the lease. I gave up trying, and felt better that all they got was $300, not the $1700 that would have been one month's rent. There's a lot of good tenants that just can't afford to let that kind of money sit for a year and potentially not get it back, so they'll go to the place that has a smaller deposit. As I, personally, would never pay 2 months' deposit, I can't imagine asking my tenants to do so.
Cincinnati, OH · Member since 2013 · 292 posts · 81 votes
13y
"Nearly 44 percent of Americans don't have enough savings or other liquid assets to stay out of poverty for more than three months if they lose their income, according to Wednesday's report by the Corporation for Enterprise Development. Almost a third have no savings accounts at all." - Morning Edition, 1/30/13
Granted $2,000 rent means higher income, but not necessarily higher assets.
Property Manager · Big Bear Lake, CA · Member since 2013 · 585 posts · 330 votes
13y
Just so you know, in California you can't collect last month's rent when they move in.
Let me clarify my quote from above: You can charge a security deposit of twice the rent only (unfurnished place). So, you can't charge a last month's rent + 1.5 or 2x the rent for a security deposit.
You could technically charge the last month's rent + 1 month security deposit and that would be fine. But, I would not do that. It just gives them permission to skip the last month. I would rather have all of it to go toward repairs if needed.
Investor/Landlord · Farmington Hills, MI · Member since 2011 · 1k+ posts · 1k+ votes
13y
I agree with Ryan. It doesn't make sense to rent a $400K house for $2K a month. Are you even covering your taxes and insurance? Unless you have future plans for this house you will be much better off selling the house. If you want to be a landlord buy a house, or a couple houses, in an area where the market rents give you a reasonable return.
If you ask for too much money, you simply won't find tenants.
Tenants aren't going to pay 3 months in security deposit.
Most don't have that kind of money upfront, if at all.
And, even if they did, why would they when they can rent elsewhere for a smaller deposit?
Even if most tenants had $5,000 (unlikely), throwing all that money at a security deposit would deplete their savings.
And, I can't imagine many tenants trusting landlords not to try to keep some of that huge deposit. $5,000 is huge to tenants. Why would they risk that much?
If tenants had, say, 2 or 3 months security deposit, they might instead look for a nicer place (with higher rent) or try to use it for a home downpayment. Most tenants simply don't have a few thousand, or anywhere near $10,000, saved up. If they did, they probably wouldn't be renting... at least not long-term.
On top of that, someone could have 2 months or 3 months in a security deposit right now. Then, all of a sudden, the job they've had for 20 years is gone. Their company goes bankrupt. All of a sudden, they're out of a job. They're 50 or 60 years old and it's harder to get hired again at their previous salary level. Now what? Do you seriously think they'll tell you upfront that they lost their job? Maybe they could afford one more month in rent, then they stop paying you. You would have to evict, and in some areas that takes longer than others. Or, what if they trash your hardwood floor and remove the appliances/light fixtures? "At least" you had a higher security deposit, but that doesn't mean you're not out money either way. Losing less is better, but it still doesn't remove the risk.
It's just much harder to find tenants who are willing to plunk down thousands of dollars (or who even have thousands of dollars) for a security deposit. You'll shrink your tenant pool by leaps and bounds.
Some areas I've heard limit how many much you can require in a deposit.
Landlord and Rehabber · Newton, MA · Member since 2010 · 2k+ posts · 877 votes
13y
Well in my area that would be very illegal.
In MA 1 month max also no pet deposits, oh and no late fees until they are 30 days late.
We can do last months rent.
I usually ask for first, last and security.
If I cut back it starts with the security since that tends to end up being last months rent by default. We also have strict requirements for security deposits as far as separate escrow accounts, interest paid on it, documentation to try to keep any and if they get a free lawyer to fight it in court they can get awarded treble damages.
Fyi I have been moving my long term investments out of state. :)
Investor · Cypress, TX · Member since 2013 · 403 posts · 59 votes
13y
Originally posted by Shaun Reilly:
Well in my area that would be very illegal.
In MA 1 month max also no pet deposits, oh and no late fees until they are 30 days late.
We can do last months rent.
I usually ask for first, last and security.
If I cut back it starts with the security since that tends to end up being last months rent by default. We also have strict requirements for security deposits as far as separate escrow accounts, interest paid on it, documentation to try to keep any and if they get a free lawyer to fight it in court they can get awarded treble damages.
Fyi I have been moving my long term investments out of state. :)
Wow, I personally won't ever own property in MA. That is for sure.!
Landlord and Rehabber · Newton, MA · Member since 2010 · 2k+ posts · 877 votes
13y
Originally posted by Ben Hughes:
Originally posted by Shaun Reilly:
Well in my area that would be very illegal.
In MA 1 month max also no pet deposits, oh and no late fees until they are 30 days late.
We can do last months rent.
I usually ask for first, last and security.
If I cut back it starts with the security since that tends to end up being last months rent by default. We also have strict requirements for security deposits as far as separate escrow accounts, interest paid on it, documentation to try to keep any and if they get a free lawyer to fight it in court they can get awarded treble damages.
Fyi I have been moving my long term investments out of state. :)
Wow, I personally won't ever own property in MA. That is for sure.!
Didn't even go into the fact that it isn't a very good cash flow area!
While you can find some decent ones, and I have, it is virtually impossible to hit the 2% rule (Unless maybe you go WAY out, like 100 miles from Boston) and even 1% isn't easy. Near Boston lots of stuff would be less than 0.75%.
Of course in that area most people are buying for appreciation, not my gig for long term holds.