What do you charge for your deposit? Higher = better applicant?

Question

I'm just curious, because I have rentals and have been getting poor applicants for a long time. I recently decided to charge 1.3-1.5x rent instead of typical 1x rent and I've been getting better tenant applications.

Maybe I'm weeding out some borderline applicants with the higher deposit?

I'm curious what others are doing.

Any thoughts?

Maybe I'm weeding out some borderline applicants with the higher deposit?

I'm curious what others are doing.

Any thoughts?

Anthony Wick · Answer

Everybody around here charges one months rent for deposit....except me. My rents go for between $1,150-1,325 a month. I wanted something to stand apart from the crowd, so I went with a $1,000 deposit. Why? Well, I figure that extra couple hundred dollars won't matter much if somebody completely thrashes my property, but perhaps that couple hundred could sway somebody to apply to my place over another. Does it work? Well, I'm not sure, but I don't have vacancies so far. I also keep the standard credit, employment, criminal, eviction checks of course. Again, I figure if the damage gets to $1,000 or more, I have bigger issues than that extra couple hundred bucks that I'd keep from the tenant.

Nathan Gesner · Answer

You're on a forum asking complete strangers how to get better applicants when you already have a PM? That tells me your PM is not good at their job! Your PM is setting you up as the fall guy instead of protecting your interests. He takes the applications, hands it to you, and forces you to make the final decision. When the tenant destroys your house, the PM can say, "Well, you're the one that approved him."

I highly, highly recommend you educate yourself on what a good PM looks like and then start shopping for one. Your PM should be the expert in screening applications and deciding who rents the home. I have over 300 rentals with 150 owners and I don't call a single one of them to ask for advice on who to rent to because they don't know squat about screening or what makes a good tenant. Contact me directly and I can point you towards some simple, objective resources on how to find a better PM.

I think you're looking at this whole thing backwards. You think charging a higher deposit gets you better tenants but all it's really doing is increasing your control over a bad one. Let's say you have a really bad tenant that always trashes his unit, fails to pay his last month's rent, and abandons the property, leaving you with a major mess and a $1000 deposit. If that tenant paid a $10,000 deposit, do you think he would adjust his behavior and try to get some of that money back? Yes, in most cases. But he's still a bad tenant. All you've done is put bigger bars on the cage in hopes he never breaks out.

What you really need to do is figure out how to find good tenants that don't require baby-sitting or you standing over them with a big hammer. A good tenant will behave whether you charge them a $500 deposit or a $5,000 deposit. They have a history of taking responsibility, which is why they have good credit, a stable job, no felonies, good debt-to-income ratio, and strong Landlord references. Screening is not without error but it dramatically increases your chance of success.

I use a score sheet where applicants are awarded up to three points for ten different categories. The higher the score, the less risk they are and the less deposit I charge them. This also keeps it very objective so I don't have to worry about someone claiming I discriminated against their skin color or something.

Jeff T. · Answer

@Frank Adams, that's a good point I hadn't thought of. I've had people say "my last landlord just let me use the deposit for the last months rent". I've also kind of let that happen in special circumstances, but I won't be doing that again. People rarely do what they say they will or have a reason they can't and I'm stuck with the bill.

I'm just trying to work out a better system to get a better first applicant. The higher deposit seems to have helped. Also I've been fixing up the places and removing eyesore things (I had an avocado color stove!) eesh.

Frank Adams · Answer

Back in the '90s I started charging a higher amount, higher than a month's rent, for security deposit. That way people "should" have realized that they were not paying the last month's rent. I also added an addendum to the lease that spelled out that this was a DAMAGE/SECURITY deposit and COULD NOT BE APPLIED to rent in any circumstance.

Jeff T. · Answer

@Christopher Finn, @Patrick M. @Kathryn Dillon

Well, I think part of the issue has been the PM takes the first applicant and then I have to decide based on that one applicant without seeing anyone else.

I think the higher deposit has been weeding out some borderline tenants with limited funds. Plus, one months rent is never enough to cover costs after a tenant leaves (well, the places are often trashed).

From the comments it seems like 1.5x rent is not unusual.

Patrick M. · Answer

I definitely see a difference with a higher rent. We charge 1 and 1/2 months security deposit as well, hard to separate the driving factor.

Also, don't sell yourself short- after your 1 or 2 leases you are screening in better ways and not even realizing it.

Christopher Finn · Answer

I don't necessarily know if a higher security deposit will result in better tenants, however, I always go with a month and a half.

The more security you can provide yourself with should things go south, the better.

Kathryn Daniel · Answer

We charge 1 month rent for the deposit. I think the most important way to weed the bad ones out is through the screening process. In addition to credit/criminal background checks, we research the applicants on social media and in local court case record databases. Sorry I don't have much input on the deposit amount, but hope that helps a bit.