First month, last month, security deposit?

16 Replies

I am renting my property for the first time. Normally, what’s collected prior to moving in? Is it first month, last month, and a security deposit? I’m getting mixed advice. Some say just first and last month, with no security deposit, while others have said it first and last, with a deposit. I’m looking for clarification. Lastly, what is the normal amount for a security deposit?

Originally posted by @Erich Oertel :

@Bjorn Ahlblad

So for example. If rent is $1800.00 a month.

I’m charging $1800.00 first month, $1800.00 last month, and another $1800.00 for a deposit?

So I’m getting $5400.00 to move it?


Correct. 

Keep in mind that each area is different. In many parts of the US, it is typical to get 1st month and 1 month security. In S. Florida, what you mention above was the norm for a while. About 5 years ago, some agents (including myself) began moving to a 1st month + 2 months security.

Find out what your state laws are. Some states have maximum amounts allowed. I have found it prudent to get the maximum security deposit possible. I do not collect last month's rent. 

There is no set law. Some do first, last, and a deposit equal to one month of rent. Some do deposits that are half a month's rent. 

I require the first month of rent and a deposit equal to one month of rent. If the tenant is higher risk based on my screening, I charge 1.5 or even 2x the deposit. The cost of moving in to a $1,000 rental can be $2,000 - $3,000 depending on risk.

You have to figure out a system that works for you without pricing yourself out of the market. You also need to know your state laws. Some states set limits on how much you can charge.

@Erich Oertel

I agree with @Nathan G. depends on the risk of the tenant. We normally get 1st and security deposit equal to one month's rent. But if they have some credit issues or a new job we might bump the security deposit to 1.5x

However, this can get very costly when you factor in CA rent prices. One way to attract a good qualified tenant is by offering a surety bond type of program. Many new companies providing this service. Instead of a security deposit, they pay a small monthly fee to the company and the company guarantees at the time of moveout for any damages. I think Rhino is a player in this field but you can Google to find info. 

I am curious if anyone else has used such a program. We are looking into it and want to offer but most likely on our higher-priced rentals to make it more affordable for prospects that qualify. 

Best of luck

Originally posted by @Luciano A. :

I am curious if anyone else has used such a program. We are looking into it and want to offer but most likely on our higher-priced rentals to make it more affordable for prospects that qualify. 


I've heard good things about Rhino but have not used them. They are essentially an insurance program. If the tenant leaves damages, the insurance company pays for it and then pursues the tenant for reimbursement.

I use Obligo which is a billing authorization. The tenant gets their credit card and bank account approved by Obligo and authorizes them to withdraw money from their account. If the tenant leaves damages, Obligo pays me and then tries to collect from the tenant's accounts. IF the tenant shuts the accounts down before Obligo can collect (very rare), it is still Obligo's responsibility to go after them. My payment is always guaranteed, which is what I like about it. The problem with Obligo is it can sometimes take several days for the tenant to apply and have their accounts approved. The other problem is that it requires a checking account AND a valid credit card, both with an available balance of $800 at time of application. Many of my lower-income renters are unable to meet this requirement so it's not available to them.

 

  @Nathan G. actual there is set law depending on where the home is located.  @Erich Oertel you may want to post the city/state your home is in as you will get better more specific answers.  In addition as others have stated there are local norms.  If you are unsure what your local norm is just look at rental postings on your favorite site and most will list what is required to move in.  

Security deposit for sure my guy! If they fall behind you can always say to the tenant that you can use it for the month they fell behind and hope that's enough to get them back on track. Once someone falls behind it's hard to catch up so that deposit can be a security net. its better than having to go through eviction, especially if you're in a tenant state! It can also pay for property damage without having to take these people to court. 100% get a deposit!

@Erich Oertel most tenants think of the security deposit as the last months rent anyway. I wish I had collected 1st, last, and security but I was in a c/d market and it was difficult to ask for so much up front. It is advisable though, if you want anything remaining for damages.

In my area of CA it typically first month and a deposit worth at least 1 month rent plus any pets etc. When rent is $1800-2000 for an "average" rental, doing first, last and deposit is REALLY hard for many people... having a renter come up with 5-6k is challenging in most areas. 

DO NOT use a deposit as a "catch up" on rent... EVER. A deposit is to cover you for damages AFTER they leave and a back up if they bail without paying a month of rent..... if you use it to "catch up" on rent while they are still living there you will be left holding the bag when they move out and the place is trashed. Same if you use to to cover damages while the tenant still lives there. Its not a "slush fund" for the tenant to tap anytime they want during their tenancy. A deposit should be considered a completely separate entity and should not be considered or mixed with what qualifies as rent

For my B rentals in FL I obtain 1st and 1 months security deposit for  most tenants.  I screen very heavily but if the tenant is even close to shakey credit wise I also require last months rent.  I have never had anyone (so far) not pay their last months rent but I do let they know if they are ever late I will start the eviction process (following the state requirements).  Quality tenants do not want big hits to their rental/credit history if they can help it.

@Erich Oertel In my state we are only allowed to collect 1st month and 1 month security deposit which then must be held in an interest bearing account. With interest rates being what they are that means the tenants earn about $0.01 per month but it’s the law.

@Erich Oertel

I don’t have actual experience yet, but I’ve always been taught 1st, last, and security deposit. I’ve also always been taught the security deposit needs to be a different amount than rent so it is not confused (or legally considered) as a month’s payment of rent, much like Ned J. mentioned. Reading through the other replies I’m surprised to see so many that charge the same amount for the security deposit.

I typically collect 1st and last month's rent plus security deposit equal to one month's rent.  I do allow the tenant to pay for the last month's rent in installments over 6 months.  This has worked well for me.  In the times in the past when I didn't collect last month's I regretted it.