Last month rent vs security deposit. Which is better

[John Gross]

Hi Everybody, I am new to bigger pockets and long term leases. I have a young couple wanting to rent my adu at my house for one year in Arkansas. 

I see on the lease agreement an opportunity to charge last month rent and or security deposit. Is one better than the other? Why? I don't want to overwhelm this young couple with too many charges so trying to figure out best solution. 

Your feedback is much appreciated!

[Dan H.]

Quote from @John Gross:

Hi Everybody, I am new to bigger pockets and long term leases. I have a young couple wanting to rent my adu at my house for one year in Arkansas. 

I see on the lease agreement an opportunity to charge last month rent and or security deposit. Is one better than the other? Why? I don't want to overwhelm this young couple with too many charges so trying to figure out best solution. 

Your feedback is much appreciated!

 You want a security deposit.  If your lease is written correctly the security deposit can be used to cover any tenant caused damage (not normal wear and tear), any unpaid fees (late payments, etc), or any missing rent.  

Let’s say you went with last month rent in lieu of a security deposit.  They stay until end of lease term but they paid last month at move-in and so do not pay any rent at the time of the last month (they have already paid it).  When they move out you find out that someone has used the oven door as a seat and it needs to be replaced at $300.  Someone place hot pot on Formica counter burning it and it cannot be matched.  Cost $1k but due to being 5 years old you charge $500.  There is a significant damage to an exterior door frame where tenants locked themselves out and decided to break in.  $250 to repair.  Were they bad tenants?  Probably not ideal, but not the worse.  Accidents happen.  I have caused damage to my own house for stupid items a few times.  One of my protégés had some items frozen together.  He banged it on granite counter to separate.  The granite counter broke off a big corner.  Not wear and rear, stupidity but not intentionally destructive.  

If you have no security deposit, you would have to collect for any damages. 

Your lease should also be clear that the security deposit is not to be used for last month rent.  I have had tenants ask to do this quite a few times. I have had one that did not pay last month’s rent so I started the eviction process mostly to scare her.  She paid the rent and associated late fee.  Just because they are at the end of lease does not imply the lease is not to be followed.  

Good luck