Is 2.5 months rent too much for security deposit???

Question

So we are about to close on our first 6 flat building and when speaking to my banker (who is also a REI), she stated that she requires 2.5 months rent for her security deposits, because we live in Cook County and evictions could take 6 months.  I really feel like the 1 months rent is pretty standard for our area, but I do see her logic and it seems like it makes good sense. What do you guys require???

Rick S. · Answer

@Jeremy Mack there have actually been a few posts about Cook County because of the really strict security deposits rules.  Sorry if you already were aware of that but, if not, here are a few as some people are moving towards a non-refundable move-in fee instead of deposits to avoid legal issues:

https://www.biggerpockets.com/forums/81/topics/410...

This one is a little older:

https://www.biggerpockets.com/forums/52/topics/126...

Kimberly H. · Answer

@Jeremy Mack I'm like 99% sure Illinois has no rules about the security deposit limit. Does Evergreen Park have their own rules? Some cities have their own rental rules like Chicago, Evanston, a couple others.

The issue is, can you find anybody with 3.5 months cash sitting around for your rentals, that's a full first months rent plus 2.5 months security deposit.  If so, are they willing to put that up to live in your rental when everyone else is only charging a month security deposit? I would love to get that for mine but people don't have it. Your first layer of defense is screening  your applicants hard. You could always make the SD vary based on the risk of the applicant as well.

Rich Weese · Answer

I don't care if you call it a security deposit or a move-in fee. I would go for the most that you can obtain an different markets are more willing to accept that. I agree with all the other posts that you need to check and verify what you're state laws are. I would also charge whatever the maximum late fee is per day. A tenant that is just moving in, will agree to almost anything that is in your lease agreement. If the market is strong.

Kurt Gardner · Answer

yes.

Dooreuhn Cee · Answer

@Jeremy Mack You may want to reconsider security deposits altogether because of the RLTO and go for a non-refundable move in fee.

Michael Noto · Answer

@Jeremy Mack As many others have said, check your state laws.

In CT you can charge up to 2 months security for tenants under 62, over 62 the max you can charge is 1 month.  As you can see, there can be little subtle things you want to be aware of depending on the state you are in.

Mark Ainley · Answer

@Jeremy Mack Even in areas where we collect security deposits(outside of Chicago) we try not to inflate the security deposit because we feel it cash straps the tenant until 30 days after they move out or they fail.  Many times we will ask for 2 months up front and last month in a high-risk lease + just one months deposit.  The money goes towards something for the tenant that is a real expense...rent!   This lessons our collections efforts as well on the PM side.

Crystal Smith · Answer

1st- We don't do security deposits in Cook County.  We request move in deposits & they are usually between 1 & 1.5 months of the rent.

Jeremy Marek · Answer

@Ford Willoughby, I do not know about 10 years ago, but security deposits in Illinois can be used to pay for any loss to a landlord caused by the tenant. That includes unpaid rent and or damage to the property (Someone please correct me if I am wrong).  @Kimberly H. To my knowledge, I do not believe our area has any extra rules regarding security deposits. I agree with you Kimberly, I think if we were to require such a high security deposit amount, the unit would sit vacant for a long time, waiting on someone who has that much $$$ on hand.

Ford Willoughby · Answer

I had a 7 flat 10 years ago and evictions never took more than 3 months. As I understood things at that time  a landlord could not hold a security deposit to cover unpaid rent;  it was only for damage to property. That's why  many landlords  charge  first month, last month rent, and the equivalent of one month's rent security deposit . Now the truth of the matter is that most tenants don't realize they can actually sue you for your security deposit even if they owe you rent.

When I accepted a tenant to live in the building I would explain to them, before they moved in, if they were more than 5 days late with the rent they would be served with a 5 day notice and a 30 day notice after that. I would assure them that I would be available to make an arrangement to bring their account current but would pursue the eviction process immediately. Once I gave the 30 day notice I would file a motion and get a court date which is typically two weeks from the date that you apply. The tenants would then be served notification of the date.  when we arrived in front of the judge the only thing the judge will ask is if was the rent paid. The judge is only interested in that breach of contract .  Even if the tenant complains about heat or a leaky roof or anything else  he will direct them to another Court.  he is only there to determine breach of contract. If the tenant cannot prove that they paid via canceled checks or receipts the judge will order eviction and give them 2 weeks  to vacate. By this time, if it's looking like they are going to default on the rent, then the landlord needs to go to the Sheriff's Office and get an eviction  date that cost about $250. If they end up having to physically remove a tennant from the building and put furniture on the sidewalk that date is two weeks after the judges date.

Is 2.5 months rent too much for security deposit???

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