How can we get around high move in cost?

Question

We are having some trouble filling our vacancies here in November and it’s not from lack of interest, it’s from lack of money for the deposit. We are getting a lot of questions and showing request from our marketing in which we post the rent. The rent price is not the problem either it’s the deposit. Our vacant apartments are in a blue collar town where 19 and 20 year old are getting factory jobs for $14-$20 an hours, but no one has any savings.

We have been talking about 2 options and want some input, we have no desire to reinvent the wheel.  1) Charge $100 extra a month for 5 months to get the deposit

2) Charge $60 a month extra on the appartments and put it straight into maintiance account

Any experience with this is welcome as is other ideas.

Please and Thank you

James Wise · Answer

I've been around the block a few times. ($50M portfolio) & I can tell you without a doubt it's a terrible idea to put a tenant in the property that cannot pay 1st months rent & an equivalent security deposit.

The fact that many people you are talking to cannot afford this is actually a good thing. It is helping you weed out bad tenants.

If they are not financially responsible enough to save that tiny amount of money they are just a breeze in the wind away from not being able to pay the rent. Stick to your guns and wait for a tenant who can pay the move costs up front, in full.

Bettina F. · Answer

Vacancies kill your bottom line.  So do damages, especially without deposits.  You need to protect your investment.

You are going to have to put new tenants on a "management intensive New Renter" program for the 1st 5 months until the deposit is paid.  Write up a rental agreement addendum -- month to month at first with monthly property inspections, an additional $100 bucks a month rent until deposit is paid.  Have written rules --  NO parties, unauthorized guests, underage drinking, police calls, whatever.  Then you will need to monitor and enforce the rules, and immediately charge for damages as they occur.  Let  tenants know this management intensiver New Renter program goes away when the deposit is paid.  Your factory workers may be in a situation where they can easily work some overtime and quickly earn the deposit.  This will be a real PITA for you, but it is the only way I see out of your situation.

If you are renting to 20 year olds you will need to make sure that your building does not turn into Animal House.  The folks who rent to students may have some good advice, but your factory workers probably don't have parents who are collectible co-signers.

Levi T. · Answer

We have not. However, I think this could be a great idea for larger portfolios that have a few hundred tenants as we do. I tapped my Sr. PM after posting that, and started bouncing ideas.. Our average rent is $900 - $1,300. In our state we are allowed to charge a max of 2x rent for a deposit, so what if we systemized deposits to be a flat $1,500, or they can pay $75 per month for a warranty on damages (only damages) of up to $1,000. This means they pay $900 per year to this fund, and that means for every 100 units that signup, we generate over $90,000 in additional income that goes right to the bottomline. We can also require the program to have a 2 year lease agreement, which adds value and slows turnover rates. I think it's a win-win, those who don't care about their deposit will damage your property anyways, and the cost is always much higher than the deposit. For those would would care about a deposit, they fear the courts and a lawsuit for damages.. We have no problem getting deposits or renting units, we rents them faster than we can rehab them, but I think we are going to do this ourselves, it's huge!

Levi T. · Answer

@John Hagen Do one better, take the deposit amount and divide it over 12 months, and apply it to the rent forever, not as a deposit, but as rent. This means they pay the amount of a deposit every year they stay. If they stay for 3 years, you’ve earned 3x the amount of a deposit via the raised rent. You can also run this as a promo by advertising no deposit needed. Your just introducing the deposit in another format as rent and everyone wins.

Michael Noto · Answer

@John Hagen I would highly recommend not compromising on the deposit in any way. If they can't pay their deposit and the first months rent upfront their will be issues throughout their tenancy coming up with the rent. You are just getting inquiries from people who aren't qualified.

Talk to anyone who has been doing this a while and they will tell you they are much more afraid of a problem tenant than a vacancy.

John Hagen · Answer

@Michael Beeman Tagging my partner

John Hagen · Answer

@Levi T. That is what we were thinking about by raising the rent $50-$60 a month and putting the extra into repair account. Do you have experience doing this? How does it work out?

John Hagen · Answer

That is a great idea we will talk about that and have your maintenance guy do the checks. We do rent to a few 20 year olds but they all work in the toyoda plant 45 minutes away so no much partying after a long day and drive time. Most of our people are mid 20's to 30 but just no savings what so ever, but good jobs.

John Hagen · Answer

Seth, that is one of our concerns. However, I don't think we've given a deposit back yet so its not helping much

How can we get around high move in cost?

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