Double deposit vs pre-paid rent if rental qualifications are not met

Investor · Richmond, VA · Member since 2014 · 88 posts · 22 votes

If a rental applicant falls a little short of our qualification standard of 3x income or favorable credit, we sometimes offer an option for the tenant to pay a double security deposit or pay 2 or 3 month's rent in advance.

I would love to hear if other landlords or property managers offer this option, and if so, do you think it is more beneficial for the landlord to accept a double deposit, or rent paid in advance?

Thanks very much!

Mike

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Account Closed

Professional · San Antonio, TX · Member since 2015 · 87 posts · 67 votes

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If we have an applicant that falls a little bit short, but we think they'll make a good tenant we prefer to take additional deposit.

When you take additional prepaid rent that gets used up during their tendency while the additional deposit stays until they move out.

Often times when the tenants pay the additional deposit you want to make sure they get that money back when they leave and them more incentive to leave the property in good condition.

Kevin

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Account Closed
Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
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Originally posted by @Mike Oconnell:

If a rental applicant falls a little short of our qualification standard of 3x income or favorable credit, we sometimes offer an option for the tenant to pay a double security deposit or pay 2 or 3 month's rent in advance.
I would love to hear if other landlords or property managers offer this option, and if so, do you think it is more beneficial for the landlord to accept a double deposit, or rent paid in advance?
Thanks very much!
Mike
Where I have rentals deposits are controlled by local laws. If I break the law the tenant has the upper hand.
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Mike D'ArrigoPro Member
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
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@Mike Oconnell Good property management is more art than science, so sometimes it's a good idea for PM's to be flexible. You have to be careful of bending your criteria though. I wouldn't do it if it's because you're desperate to get a tenant, but if everything else looks good about the tenant, then you might consider it. Keep in mind that there are very few perfect tenants. @Account Closed raises a good point however. Deposits are usually controlled by local laws. Some are far more restrictive than others, so check to see what can be done and what can't first.
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David S.
Investor · Prairieville, LA · Member since 2015 · 311 posts · 424 votes
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As Bob stated, maximum deposit amounts are controlled by state and local laws, so a double deposit might very well exceed the legal amount in most states.
In this case, one could ask for 1st and last months rent and the deposit, if legal in your area.
I could not get that much in my area due to this not being an acceptable business practice. In a hot, high demand rental market, then a landlord could probably get that much. If proposed this scenario where I do business, a tenant would just move on to the next landlord. In effect, the tenant would be disqualifying him/herself, or just simply withdrawing the application.
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Account Closed
Professional · San Antonio, TX · Member since 2015 · 87 posts · 67 votes
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If we have an applicant that falls a little bit short, but we think they'll make a good tenant we prefer to take additional deposit.
When you take additional prepaid rent that gets used up during their tendency while the additional deposit stays until they move out.
Often times when the tenants pay the additional deposit you want to make sure they get that money back when they leave and them more incentive to leave the property in good condition.
Kevin
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M Marie M.
Rental Property Investor · Washington, DC · Member since 2015 · 278 posts · 156 votes
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My sister in law in Silicon Valley prepaid for a full year for a place that I believe was beyond her financial means, using her mother's (my MIL) money when MIL was pulled out of the nursing home she was staying. It was in the neighborhood of 35K.
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Mike Oconnell
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Investor · Richmond, VA · Member since 2014 · 88 posts · 22 votes
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Thank you @Account Closed! That is exactly the kind of advice I was looking for!
In my location the landlord can collect a security deposit not to exceed the equivalent of two month's rent, and as much prepaid rent as the tenant is willing to pay (but it has to stay in an escrow account until the rent is due).
I was looking for pros and cons for both options and you gave them to me, thanks!
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Ron Fastov
Investor · Maplewood, NJ · Member since 2015 · 4 posts · 2 votes
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In New Jersey, there are limits on how much a landlord can take up front. Consumer protection law.
The biggest tenant problems I have had are with tenants I inherited with low security deposits.
That said, it's just economics: in states with lower eviction cost and turn time, lower security deposits can cover the down time.
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Matthew Paul
Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
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With 2 months deposit , you can evict them for non payment of rent and you have the deposit to cover losses . With pre paid rent its harder to evict for violations
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Mike Oconnell
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Investor · Richmond, VA · Member since 2014 · 88 posts · 22 votes
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@Matthew Paul Great point, thank you Matthew!
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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
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I'm not sure if I would take them on or not. I would be more concerned with their long term ability to pay than being able to come up with an additional month of rent or deposit.
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