Increased Security Deposit for New Renters

[Brian Anderson]

I have a home in Orange County, CA that I am going to rent out. The had to evict the last tenants and lost out on 5 months of rent do to the evictions being frozen.  I wanted to ask for 2 months security deposit  to help protect against something like this happening again and was wondering what other residential landlords are doing in California given the laws favoring the tenant.

[Filipe Pereira]

Always get as much of a security deposit as you can if you have concerns about a tenant @Brian Anderson. You can also look into insurance that would cover the rental income should you need to evict a non paying tenant. I'm not sure of the costs of that type of insurance, but it may be worth it if you're not comfortable in your tenant screening quite yet. Another option is to have a mentor of sorts review a tenant's application materials before you accept them. 

If you go with that last option, make sure you have permission to be sharing potentially confidential information with your mentor. 

[Joe Homs]

@Brian Anderson in California, you can only legally ask for two months deposit, unless the home is furnished and you can ask for three.

Asking for more deposit does not guarantee that it won't happen again.  Do your due diligence and qualify your future tenants thoroughly before they move in.

For me this begins with a full credit and eviction check (which they pay for.)

Ask for proof of all income provided in the application.

I ask for two months of bank statements and if self employed two years of tax returns.

The final thing I do is a person to person interview.  This is where I learn everything about them and you would be surprised what they share.  Red flags: "I have really bad credit, but its getting better so I hope you can overlook that?"  "We are ready to move tomorrow."  "I am self employed and make over $200K a year."

Hope this helps.

Good Investing...

[Account Closed]

Hi there Brian! 

I understand your desire to get two full months as a security deposit for extra protection, especially considering  the bum deal you just experienced with your last tenants. Collecting a higher security deposit will provide that greater peace of mind you desire, but it'll come at the cost of additional days on market. Increasing the move-in cost will decrease the number of tenants in your prospective applicant pool; so ask yourself if that is something you're prepared to deal with. It's been 5 months since you've collected rent - how much longer are you willing to wait? I would adopt your strategy if it's a A/B/LUX class property in some of the nicer areas of OC where disposable cash is more abundant; otherwise, I would just collect one month and exercise supreme diligence during the screening process. I hope that helps!

Best,

Jeremiah

[James Hamling]

Has anyone thought of using a personal guarantee feature? Taking a page from the banks play-book. Not a guaranteed route for rental income but locks in a mechanism for recovery of funds via debt collection method, and the pressure point of negative impact to credit report. 

I know it's not conventional, but neither is being told you can do next to nothing if a tenant dosn't feel like paying their rent. Unconventional times call for unconventional solutions. 

[Brian Anderson]

Thank you for all your comments.  I have a renter with good credit and we did a solid background. Check.  We agreed on a deposit of 1.5 months.  

[Ned Carey]

@Brian Anderson first of all welcome to BP I see this is your first post.

Congratulations on getting extra deposit. I would agree get, as much as you can. However to @Account Closed's point don't require it at the cost of losing a good prospective tenant.