Initial Rent & Deposit?

New Jersey Real Estate Q&A Discussion Forum
8yFollow

Initial Rent & Deposit?

Joe P.
Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes

Hi all,

I just purchased a property in Gloucester City; its a duplex with one unit rented, and another vacant. I've been trying to get tenants in with not much luck so far, and I had one prospective tenant say that my deposit requirements may be illegal.

The rent is $950 per month, and the security deposit is $1,250. I was telling folks that the initial deposit is first month's rent, last month's rent, and security deposit - a total of $3,150. This particular prospect indicated that I could only charge first month's rent and security.


I scoured the web and forums to see if there is anything preventing me charging first and last, but I don't see it. I'm concerned about being burned on that last month, which is why I want to charge it.

Would love some input from our local investors, and if anyone has a lawyer they want to recommend, I'm all ears as well! Was going to use the Rocket Lawyer landlord document for NJ and add an addendum for rules.

2Reply
109 views

Most Popular Reply

Natalie Schanne
Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
8y

@Joe P. - In New Jersey, the maximum security deposit (including any refundable pet fees) is 1.5x monthly rent. So for a $1000/mo rental, you can ask for $2500 = 1000 first month's rent + 1500 security deposit. You cannot hold last month's rent. If they don't pay you the last month, start the eviction process asap. Nobody wants that on his/her record so they'll pay if they're able. 

5Reply
See this reply in the discussion

32 Replies

Jump to latestLatest
  • Natalie Schanne
    Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
    8y

    @Joe P. - In New Jersey, the maximum security deposit (including any refundable pet fees) is 1.5x monthly rent. So for a $1000/mo rental, you can ask for $2500 = 1000 first month's rent + 1500 security deposit. You cannot hold last month's rent. If they don't pay you the last month, start the eviction process asap. Nobody wants that on his/her record so they'll pay if they're able. 

    5Reply
  • Kevin Hill
    Real Estate Agent · Hackensack, NJ · Member since 2014 · 321 posts · 412 votes
    8y

    The most you can charge by law in NJ is 1.5 months security deposit. 

    1Reply
  • Joe P.
    OP
    Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
    8y

    @Natalie Schanne thanks so much for the quick reply! I thought that the 1.5x rule only applied to the security deposit, not the entire deposit. Wow.

    So I think it would be in my best interest to charge $2,375 (950 and 1425 security). You are correct most people don't want that on their record, but most landlords don't even want to go through the hassle of the eviction for someone planning to leave and just not pay.

    0Reply
  • Joe P.
    OP
    Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
    8y

    @Kevin Hill yep I see that rule. Isn't there a difference between security deposit and general deposit? I don't want to charge someone $2000 for my security deposit, but I do want to charge first/last and security.

    0Reply
  • Antonio Porta
    Little Ferry, NJ · Member since 2017 · 53 posts · 23 votes
    8y

    @Joe P. 

    1st and last month security...? Never heard of such a thing. 

    General deposit vs security deposit. No there is only 1.5 month security deposit you can charge. 

     This document is very helpful, I suggest you read through it and educate yourself on landlord rights so you avoid any trouble.  

     https://www.state.nj.us/dca/divisions/codes/public...

    4Reply
  • Ronak Shah
    Northern NJ · Member since 2018 · 128 posts · 39 votes
    8y

    While I don't have rentals in NJ.  I heard about maximum security deposit of 1.5 months rent in NJ at a meetup last week from @Darren Sager.  However, also heard from @Jason Yarusi that he asks clients to buy surety bond when he can't charge security deposit so you can be creative in asking direct security deposit and then cover the rest with surety bond.  Disclaimer: I am not a lawyer and this advice is just my opinion and not legal advise.

    0Reply
  • Kevin Hill
    Real Estate Agent · Hackensack, NJ · Member since 2014 · 321 posts · 412 votes
    8y

    You can't charge another deposit on top of the security deposit. For example, if you were charging 1.5 months security and wanted to charge say a $300 pet deposit on top of it, that would be illegal.

    1Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    8y

    Only the tenant offered a higher deposit than 1 month due to poor credit like thyey just filed bankruptcy. You are overcharging people which can be a source complaint filed with local housing dept.

    The normal practice is $950+$950. If you follow the practice you should have no problem getting suitable tenants.

    0Reply
  • Joe P.
    OP
    Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
    8y

    @Antonio Porta thanks for your input, the link doesn't work though.

    Perhaps I'm not being clear, so I'll try and make my point and people can shoot it down.

    • Security deposit - 100% returnable to tenant upon lease end. Covers non-wear&tear damage they may have caused. Can also be used to cover non-payment of rent if necessary. The maximum security deposit is 1.5x times monthly rent in NJ.

    Security deposit rolls up to/is part of...

    • Lease deposit - an amount required to sign the lease. Can include prepayment of rent (e.g. first and last month) and is inclusive of the security deposit.

    To me, a security deposit being only 1.5x rent makes sense, and is fair. But that only applies to the security deposit, not the deposit to sign a lease to rent a unit. It's a little nuanced, and I'm more familiar with PA (where you can sign first/last, and most do), which is why I'm trying to get to the heart of the issue.

    0Reply
  • Greg Torian
    Rental Property Investor · Egg Harbor Township, NJ · Member since 2016 · 11 posts · 1 vote
    8y

       You could avoid all those hassels by just having a property manager handle everything.  They advertise, do background checks, hold the security deposits for the cost of first months rent. And if you choose to allow them to manage it month to month, they get 10% of the monthly rent. Deposited into your account regularly - well worth it. A lot less headaches!. I attempted to advertise and do background checks myself in the beginning, but then you realize the money you pay property managers is well worth it! And you get to write half of it off. Again, well worth it. 

      Good luck!

    0Reply
  • Joe P.
    OP
    Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
    8y

    @Greg Torian thanks -- the idea is to get there eventually, but I want to self-manage for now. For me, having someone doing this job requires me to know 80-90% of everything that comes up. How can I properly manage my manager if I don't know their job? Eventually I will move it, but for now, I'd rather take some lumps to understand it fully, which also helps me be a better investor in the long run. Information can sometimes be worth more than paper money. :)

    2Reply
  • James Lloyd
    Attorney · Chatham, NJ · Member since 2016 · 63 posts · 40 votes
    8y

    To my knowledge, there is no such thing as a 'lease deposit' in NJ.  I have never read any literature/statute relating to NJ landlord/tenant law using that terminology.  There is only a security deposit, rent, and fees (i.e. for a background check, pets, etc.).  When someone signs a lease you can only ask for the security deposit, 1st months rent, and any additional fee that may be due.  You can only collect $2,375 from this tenant (unless there is an additional fee not mentioned) of which 1425 is security deposit and must follow NJ security deposit law.  You cannot collect last month's rent as a 'lease deposit'.

    0Reply
  • Gregory H.
    Real Estate Agent · Philadelphia, PA · Member since 2013 · 451 posts · 369 votes
    8y

    @Joe P. You're thinking of security deposit & lease deposit as two different things, many states do not. 

    First month's rent is nearly always fine, since they're just prepaying a few weeks in advance. 

    Many states now consider last month's rent to be legally the same as a security deposit. 

    I see you are in PA. Just so you know, PA just had a state Supreme Court case that determined last month's rent to be legally the same as a security deposit. In PA you can have a 2 month security deposit for the first year, and only a 1 month security deposit after the first year. So if your tenants last longer than a year, you'll have to return their last month's rent to them anyway. 

    This data was presented to my Keller Williams office by an attorney at HAPCO ... so be wary. On all my rentals going forward, I'm just standardizing it and charging first month's rent and a one month security deposit. Just be sure to screen for good tenants, haha!

    0Reply
  • Joe P.
    OP
    Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
    8y

    @Gregory H., @James Lloyd - thanks for your input. I think I was making the distinction and I should not have. Every place I've ever rented required first/last/security but that was always in PA.

    I've already changed my listings on CL/Zillow/Trulia accordingly. I was wondering why so many people were interested but wouldn't talk to me after I told them the deposit/minimum income requirements -- I was starting to get discouraged. Hopefully my mistake is temporary and good tenants start coming out again to get this place rented.

    Many thanks to all of you for your quick and expedient education on the matter. This is why I love BP!

    0Reply
  • Vinit N.
    Real Estate Agent · Jersey City, NJ · Member since 2014 · 41 posts · 26 votes
    8y
    Originally posted by @Natalie Schanne:

    @Joe P. - In New Jersey, the maximum security deposit (including any refundable pet fees) is 1.5x monthly rent. So for a $1000/mo rental, you can ask for $2500 = 1000 first month's rent + 1500 security deposit. You cannot hold last month's rent. If they don't pay you the last month, start the eviction process asap. Nobody wants that on his/her record so they'll pay if they're able. 

     This is only partially true. Yes, NJ law prohibits you from holding more than 1.5 months rent as "security deposit". However the landlord CAN collect the last month's "RENT" upfront. In some cases, landlords have asked for last 3 months + 1.5 month security deposit upfront, especially from potential tenants who have great income but have recently immigrated to the country and so do not have sufficient credit profile.

    0Reply
  • Natalie Schanne
    Real Estate Agent · Princeton, NJ · Member since 2016 · 1k+ posts · 1k+ votes
    8y

    @Vinit N. - Do you have any specific examples / proof it's OK? I have heard of instances where a judge has disallowed "upfront rent" in NJ and the landlord had to refund all advanced rent and security deposit and ended up holding NO security deposit. Several people in my SJREIA investor community have been concerned about accepting 6-12 months rent upfront for people without credit, even in an escrow account. I know that in Philadelphia it's common to get 3 months rent upfront = 1st month's, last month's and 1 month security deposit, which effectively is holding 2 months security deposit until the end of the lease (which is helpful to have money to allocate towards rent if it's broken earlier). 

    That's why my investor friends in NJ charge a non-refundable $200-300 pet fee and not a refundable pet deposit of $500 like I do in Virginia where it's OK. 

    0Reply
  • Joe P.
    OP
    Philadelphia, PA · Member since 2017 · 824 posts · 1k+ votes
    8y

    @Antonio Porta nailed it with the "Truth in Lending in NJ" PDF document. Here is the quote from that document:

    "Therefore, any prepaid funds held to secure future rents are considered to be a part of the security deposit. This includes the last month’s rent. It does not matter what the prepaid funds are labeled."

    It is illegal to charge more than 1.5x rent for the deposit, and security deposit is superfluous for "lease hold" or "lease deposit"

    Again -- thanks to you all for this information and it seems like the answer is very straightforward.

    1Reply
  • Ronak Shah
    Northern NJ · Member since 2018 · 128 posts · 39 votes
    8y

    Another way would be to say the rent for entire duration is $11,400.  First Payment due on first full month is $1900 and rest to be paid on each subsequent 1st for next 10 months in the amount of $950.  I believe this is legal but if tenants in your area can’t afford this upfront 3.5 months rent (including security deposit) then look into that surety bond.

    0Reply
  • Anthony Wick
    Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
    8y

    My main question is, what is the normal practice in your area? Sure, you'd "like" the peace of mind of having a bunch of their money. But, are you the only landlord that is even asking for such a high security deposit, or are you the only one that is asking for first and last months rent? Around here, standard is first months rent and security deposit equal to first months rent. Iowa law allows double the amount of rent as security deposit, but good luck getting a tenant when you're the only one asking for that. 

    0Reply
  • Randy E.
    Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes
    8y
    Originally posted by @Antonio Porta:

    @Joe P. 

    1st and last month security...? Never heard of such a thing. 

    General deposit vs security deposit. No there is only 1.5 month security deposit you can charge. 

     Antonio, I was in eviction court 2 or 3 years ago.  The case before mine was a landlord evicting a tenant, and during testimony it came out that the landlord, at lease signing, had collected 1st month, security deposit, and last months rent.  The magistrate asked why he would go to that length.  The landlord explained that he's had to evict before and he's learned that it always goes long enough that the security deposit doesn't cover the combination of damage and the missed rent during eviction.  So, he collects what he calls "last month's rent" to ensure he receives closer to the amount he should have received all along if there had been no eviction.  The magistrate agreed that was ok in North Carolina.

    I don't do it, but from what I've witnessed firsthand, it's legal in NC.  No good in NJ, but more proof that all Real Estate is local. :)

    1Reply
  • Lloyd Spencer
    Investor · New York City, NY · Member since 2017 · 48 posts · 14 votes
    8y

    Has anyone here tried insurent.com or other alternatives?  I've had some problems with the 1.5x rent deposit in NJ, and I'm looking for other alternatives to get more security.  All the applicants in my markets have terrible credit.

    0Reply
  • Kevin Hill
    Real Estate Agent · Hackensack, NJ · Member since 2014 · 321 posts · 412 votes
    8y

    @Antonio Porta nailed it. Even if a tenant offers to prepay their rent for the entire year, its not legal. In NJ, that could be considered a security deposit. I often wonder why people from other states, who might not even know the laws in New Jersey, give advice. What's legal and common in your area isn't always legal and common in another state.

    2Reply
  • Randy E.
    Rental Property Investor · Durham, NC · Member since 2014 · 1k+ posts · 1k+ votes
    8y
    Originally posted by @Kevin Hill:

    @Antonio Porta  I often wonder why people from other states, who might not even know the laws in New Jersey, give advice. What's legal and common in your area isn't always legal and common in another state.

    Touché.

    0Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    8y

    NJ laws are different than PA here for sure.  Are you using a Realtor to rent ?

    0Reply
  • Ron Rohrssen
    Rental Property Investor · Marion, IA · Member since 2016 · 150 posts · 74 votes
    8y

    in IA, yes, you can collect up to twice the monthly rent in security deposit. I don't.

    I'd had some training early on that suggested the security deposit should be greater than a months rent, and never described or related to the LAST months rent. Some tenants could take the deposit as their last months rent and simply fail to send you the last months rent.

    That potentially leaves the landlord in the position of trying to collect either the last months rent or collect for damages from the same money.

    I charge several hundred dollars MORE than the months rent. No one has ever had an issue with that.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free