how much security deposit should I collect

9 Replies

I recommend equal to a month's rent as a minimum. If your market supports it, you should collect first, last, and a deposit.

I personally use a graduated deposit based on their application. Low risk tenants pay a deposit equal to one month of rent. Higher-risk tenants pay a deposit equal to 1.5 or 2x a month's rent.

As much as legally allowed.  For SE MI that is 1.5x the monthly rent.  We have never been sorry or wish we had collected less.  Before that was our rule there were times, not a lot, but times we were sorry we didn't collect the max and wish we did.  

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We have about 21 units now. I like to collect as much of a security deposit as possible.  The point of the security deposit is to make it painful for the tenant to mess up the property. If a tenant has savings to pay 1 to 1.5 the rent as a deposit,  then it shows they manage money well. If they are willing to pay high deposits it is because they know they are going to take care of the property and get their money back.

I have found some creative ways to make sure I get quality tenants. No hassle. Pay on time.Take care of our property. Feel free to send me a direct message if I can help.

I recommend that you do not have the security deposit be exactly the same as 1 month rent. That often gives the tenant the idea that they could use the security deposit as last months rent. At least keep it $100 more than the rent... I sometimes even collect almost double the rent amount as a security deposit. It also depends on your market and what kind of tenant you are looking for, short term, long term, etc...

I see the security deposit as one of my primary initial screening methods.  In most instances the applicant knows they are moving and should know the costs involved and it is usually around 4500-5000 with deposit and first months rent.  If they haven't been able to build an emergency savings and don't have the money to move in up front than they are an emergency away from being late on rent.  I require first month's rent and deposit as well as additional pet deposit within 2 business days of approval, if you are unable to do so I move on to the next one.  This is clearly laid out in the beginning before I even show the unit and after my initial screening questions for credit and criminal to help weed out people that will not apply.  For pet deposit it is refundable and $600, I want it large enough that they want it back and it is just lumped into the general security deposit so I can use it for other things besides pets if need be.  I do not negotiate on this 2 business day rule ever, savings is a mindset and lifestyle, if you haven't done it yet you aren't going to.  This may wipe out a large chunk of someone's savings but they have showed that they most likely don't live paycheck to paycheck if they have it.  Also just because this is an initial screening tool the background and credit check are important as well but before they pay money to request it and I take my time to review it.  I did have 1 tenant I was going to select say they were good on deposit but once I gave them the good news they were going to need a couple weeks until payday.  Offer rescinded, NEXT.  

I dunno what the point of your 2 day rule is. If someone wants to rent from me, we do not have an executed contract until they give me consideration, as in money. I require the entire first month and security deposit before I take my rental listing off the market. If they cant pay and sign the lease right away, sure, I would just move on to the next person.

Originally posted by @Martin S. :

I dunno what the point of your 2 day rule is. If someone wants to rent from me, we do not have an executed contract until they give me consideration, as in money. I require the entire first month and security deposit before I take my rental listing off the market. If they cant pay and sign the lease right away, sure, I would just move on to the next person.

It seems we do it the same way I just find it helpful to have a specific number of days.  There really is no reason you should t be able to get this down in 2 days but it gives a hard deadline and when I ask if they can provide in 2 days it is either a yes or no.  During this time I don’t show or take applications but it is still posted.    I feel 2 days is reasonable for us to find time to meet and then get to the bank for a cashiers check. I also like to try for the following day to speed things up if scheduling allows.  

If allowed by law (cities can have their own rules stricter than state), always a little more than one month. I typically go for 1.25X-1.5X monthly rent. This way you can collect late fees if they try to use the security deposit for the last months rent. 

If the tenant was borderline and I was taking more risk renting to them, I'd go a little higher.

First thing is always check what local laws dictate. Some areas are restricted to no more than monthly rent. 

We used to collect one months rent for highly qualified tenants but we now changed it to a little less. For example if rent is $1695, we may collect $1500. We do this so that tenants don't mistake security deposit for last months rent. 

This advice may be different based on property class. We rent A and B class tenants with higher screening standards. We never have damages that are even half of security deposit, let alone the full amount. Our tenants have good credit, so if damages exceeded the deposit, they would pay it to protect their credit. 

If you are renting C or D class properties, tenants likely have credit challenges. In that case, assume deposit may be all you get if something goes wrong. In those cases try to collect as much as possible up front. 

Another idea is collecting some money as fees (as allowable by law). We charge a $400 pet fee, which is not refundable. This helps account for subtle pet damage that may not always be visible during a walk though (scratches or covered up smells, etc).