I wanted to float the question of deposits, and “What are they good for?” I’m thinking about renting my luxury condo out for $3500. I am going to require a renters insurance policy that I am a listed interest on. In my market, I am competing with a couple brand new buildings that are offering $0 fee’s (they have a leasing office, so no realtor fee’s). They are also offering other incentives like a free month. Granted, this incentive is just to fill the building...it is something that I need to compete with right now. These two incentives combined can add up to $7000+ in move in costs alone never mind first and last months rent.
So....considering that most people who can afford $3,000+ dollar apartments usually have good steady jobs, and are not the types of people who let their dogs crap all over their place, eat the woodwork, or otherwise destroy their home, I’m wondering what benefit I really get from having a deposit on hand. If there is damage, theoretically, I could have the insurance pay for the damages. Most deposits are not allowed to be used for a months rent anyways, and I have to place it in a bank with interest. So really what good is it? To me, not charging a deposit at such a high price can really benefit/reduce the move in price of a new tenant. Consider these other two thoughts as well. If I give a free month as incentive I am guaranteed the lose of $3500, if I take the gamble and not collect the deposit, I’m hedging my bet that the tenant wont trash the place, and therefore less likely to lose $3500 bucks
I’d love to hear your thoughts on this NYC!
@Cory Melious I would charge the deposit. You would be shocked at how some high income earners live and treat rental units that arent theirs, most renters are fine but many are entitled and may take you to court or stiff you on a repair bill rather than assume liability. Why take the risk? Taking a deposit from tenants helps to mitigate the risk and may keep you from having to file an insurance claim in the event that there is any damage to your unit, plus if the tenants have "skin in the game" in the form of a deposit that they are at risk of losing you may have a better chance of renting to a tenant and getting your unit back in tact at the end of the lease.
Landlords typically want more protection, not less. Get the deposit. FYI a single unit condo owner doesn't have to put the deposit in an interest bearing account.
Luxury condos are a bit of a pain to rent out. I went through the process late last year here in SF. I would definitely charge the deposit. No question. With a lux condo, it also becomes that much more important to get the right tenant. Luckily I got one that was looking to upgrade from within the same building and the prior landlord gave great references.
Hey @Cory Melious , I know competition from the luxury rental buildings can seem tough, but your condo will appeal to tenants looking for longer term leases (2+ years). As that free month the other building is offering only applies to the first year, once they renew, they'll have to pay the higher rent or move, and a lot of renters hate moving. You just need to market to those long-term renters.
Even if you're going to offer an incentive like free rent, you need to collect a security deposit to protect yourself. Tenants at all price points can irresponsibly thrash or break things.
Also, holding the deposit in an interest bearing account doesn't mean you have to pay your tenant interest. You are allowed to charge a reasonable fee to maintain the account, and with interest rates on savings accounts being so low, tenants aren't really expecting any return on their deposit
I've been a Manhattan-based RE broker for the last 5 years specializing in luxury and new construction condos. PM if you have any other questions - hope this helps!
In this business collection of a deposit is standard business practice. Standard practices are there for a reason, if you deviate you are increasing your risk ten fold. The wheel has been invented and refined, do not deviate from proven practices.
Remember this is a business that has been in existence for a very long time. Do as you please if you are operating a hobby, adher to practice if you are operating a business.