Security deposit - how much is too much?

Question

Would a month's rent for 2 adults living in a property be adequate Security deposit? (I plan on raising deposit by $500 which is 1/3 of month's rent for each addtl adult, such that 2 adults = $1500, 3 adults = $2000 deposit, 4 adults = $2500 deposit

Is it wise?
Thoughts? Comments?

Justin S. · Answer

My state has laws on the amount you can charge, its currently at 1.5 times the monthly rent. Your state may have similar laws.

Account Closed · Answer

best thing to do is see what other landlords are doing for similiar units in the vicinity...if they're all charging 1 month's rent as a deposit, your unit will stay vacant a long time if you charge more...as a side note, tenants always grumble when i mention a deposit..i think they've been psychologically conditioned to believe they won't get it back, so when they hear a large deposit, they basically assume the landlord will 'steal' it...i always try to emphasize that it's just a damage/security/cleaning deposit, and i love giving them back to tenants if they give me notice when they vacate, and leave the unit in the same condition as when they moved in...this eases those feelings for them.. :D

also george, what tenant class are you dealing with?  lower income tenants will struggle to come up with one month's rent plus a full deposit..however, if there's a time for them to have it, it's probably right around tax time, so it's a good time to get it if you ever had a shot!

Mitch Kronowit · Answer

In California, the maximum security deposit is twice the monthly rent for an unfurnished unit (3 months for furnished)*, but I've never asked for that much. There are probably very few in the rental market that could afford it.

* California Civil Code Â§1950.5

Bryan Hancock · Answer

Yes...definitely check your state laws George.  You can't just charge anything you want in some states.

The trouble with having a deposit equal to a month's rent is that the tenant will often want to use it as the "last month's rent" instead of it being for a deposit.  You can evict them at that point, but it really isn't worth the trouble.  They can damage your property if you get nasty with them.  You can always get a judgment for this, but it is hard to get blood from a turnip.

Higher deposits will indemnify you more, but it will also make you less competitive in the market.

J Scott · Answer

As others have stated, this probably isn't the case...you'll want to check your local/state statutes...

Also, I would recommend not having a fluctuating security deposit based on the number of adults, but instead just fix the deposit to some amount regardless of how many people will be living there.  If you need to do additional deposits (for things like pets), I would recommend a non-refundable deposit.

Joshua Dorkin · Answer

Thank you guys for quickly jumping in on this one and correcting some incorrect advice. You definitely can't just charge whatever you want in all areas.  Different jurisdictions definitely have their own requirements on the books.  Check your local laws as others have already said.

Dale Osborn · Answer

You can raise it to any amount you want. The question then becomes will you find someone willing to put that much in your hands to live in your property? Probably not. You need to stay competitive with your competitors to keep your units rented.

Barbara Smith · Answer

My son moved to Rockville last spring and he pays $1465 per month in a class A building. He did not pay anything for a deposit, the waived it totally. In my market I always get a deposit equal to one months rent, no exceptions.

George P. · Answer

What is the procedure to report late payments to credit bureaus ?
Is it lawful to do if the lease does not state that landlord may do it upon discretion?

Steve Babiak · Answer

Darryl,

You are correct in your belief that people with good credit scores will pay to protect their scores - and they usually don't need to be threatened with credit score damage for them to pay.  And they tend to not be the ones who just skip out without paying the last month's rent.

So, in the end, you have those with good scores who will keep in good standing without need for threat of lowered scores, and then you have those with not so good scores who have already proven they don't care much about the scores.

I do use that threat with all tenants right up front - that I will report to credit bureaus if payments are missed(those who have bad and are fixing it are the ones we want to target primarily here), but as I said, in practice it's not going to prevent the bad ones from doing things the bad way.

Security deposit - how much is too much?

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