Reasonable Deposit question!

[Christopher Castro]

My brother and I just purchased a multi-unit rental home in Denver.  We have a family that is interested in one of the units but move in date is June 2025.  They potentially will sign a 2 year lease, which is great.  Despite the move in date being June 2025, the two year lease is very appealing.  What is a reasonable deposit to charge in this situation, in light of us potentially losing out on two months rent?  

[Bill S.]

@Christopher Castro my advise is to keep looking for a tenant. A two lease is not really that meaningful to me. Most tenants stay multiple years and with the cost of moving unless things really don't work out. I would expect 90% of tenants to stay at least two years. Loosing two months rent for a two year lease is not a win in my opinion. Even if you had to lower rent to find a tenant for May, you would likely be money ahead to just hold the line and look for someone sooner. 

The first thing to do is, decide what your deposit will be for any term. That should be in your advertising and rental policy. Know this, Colorado law limits you to collecting no more than the equivalent of 2 months rent for a security deposit. There is your limit. With the rental market being what it is today and all other things being equal, demanding more than 1 month rent equivalent for security deposit will drive away many applicants with good or even reasonable credit. Many of the larger newer complexes allow folks to move it with little to no security deposit if they have decent credit so know that is what your are up against.

The tone of your post leads me to believe you are looking to this security deposit to end up in your bank account and make you whole for the months of April and May if they fail to move in. That's not the way security deposits work. If they don't move in, you are required to make a reasonable effort to re-rent the property and then you can only withhold that portion of the security deposit that offsets the lost rent from the time they don't move in until the time you get someone else to move in. You would get to keep NOTHING for the two months you held the property off the market waiting for them to move in.

Non-refundable holding fees. I tried that, it didn't work either. You don't have a lease and as such there are no rules around how to handle the situation the courts then revert to the landlord/tenant law which is as I stated above. You can withhold for lost rent and expenses from the day they should have moved in until you get it re-rented. They (the courts) will not allow you to keep anything more than that. 

The process is simple. Set the date you want someone to start paying rent (right now I would say May 1 at the latest). The first qualified tenant get is. If someone wants to move in June, the answer is simple, "I don't care when you move-in, we want someone to start paying rent no later than May 1. Does that work for you?" If not then move on. If you want a two year lease term, advertise that and require it. 

Right now, if you are advertising your property correctly and it's properly priced, you should have at least a dozen showings in a week and at least one applicant that passed your prescreening process. Whether or not you want that applicant will be up to you to determine. At the end of week 2 of your advertising campaign you should have at least 25 showings and 2-5 applicants and one of those applicants should qualify. Generally speaking, if you are not hitting those numbers you have one or more of the following wrong. 

1) bad/insufficient advertising - not list on all the rental listing sites, poor quality pictures, and poor description.

2) unrealistic criteria - you want above market for credit, length of lease, or some other item that is out of sync with the current market.

3) Price - too high results in not enough inquires and too low swamps you. I have seen listings that have been posted for 3 weeks with 5 inquires. Clearly priced too high.

4) You are not responsive to inquires. We live in a microwave society. If you don't respond to inquiries during normal business hours no more that 5 minutes after they arrive (ideally 2 minutes) you can expect the applicants to move onto other properties. You need to respond to inquires outside of business hours within the hour (ideally within 2 minutes) if before midnight or after 6 am. Those between midnight and 6 by 7 am the next day.

5) If you have adequate showings but no takers, then there is something "wrong" with the property. It might be priced too high for the condition, the location might not be ideal, your showing process might be too cumbersome. 

My advise is to keep looking for your new tenants.