Recent statistics reveal that 10.6 million Americans have rental properties that they earn income from. Further, landlords who are more “mom and pop” own 20.5 rental units.
If you are “mom and pop” or own a plethora of investment property, you experience the same challenges with property management as everyone else does. One familiar question to landlords is how much they should charge for a security deposit amount.
A security deposit will protect you and your property, but it must also be reasonable to attract good renters. This article will help.
Now, before you sign another lease agreement, here are the specifics you should consider.
Each State Varies
First, determine if the state you have the property in has a limit on a security deposit amount. Some state laws cap the amount you can ask for.
Approximately half of U.S. states do not have a cap, and as the landlord, you can choose the amount you want to charge. The state of Florida currently does not have a limit.
Go With the Standard
One month’s rent is the standard most will charge for the security deposit amount. You want to stick with this. However, there are other factors to consider.
You may wish to charge over one month if you have a furnished property or if the renter has pets. Another reason could be the tenant has a low credit score. If you work with a property manager, they may recommend that you charge a higher amount for a security deposit if someone has bad credit.
Do Not Supplement Last Month’s Rent for a Security Deposit
Sometimes a landlord may ask a renter for the first and last month’s rent to be included with a security deposit. If you think you should charge a small amount for the security deposit because you have the last month’s rent, this is a bad idea.
Money paid for the last month of rent must be for this purpose. Some states specify this in their rental laws. Even if there are damages to the property that exceed the security deposit, you may not charge that amount with the last month’s rent.
For a High-Rise Renter, Charge the Maximum
State and local laws will give you a baseline for your security deposit amount. Also, the state may give you a maximum amount they will allow. Of course, if the cap is a one-month security deposit, then that is what you must go with.
If you have a tenant screening that comes with some red flags, they have a short tenure at their job, or there is a high demand for the property, you can try using a security deposit calculator to help you beef up the amount.
Compare Your Property With Others
Do some detective work and see what the other rentals in your area charge for a security deposit. Do not let this be your deciding factor. It will only help to give you a guideline of what would be a competitive security deposit amount.
If you are adding on a security deposit for pets, this should be given to you separately. Pets are notorious for creating property damage and leaving a lingering odor. While you can have a “no pet policy,” this can limit your pool of potential occupants.
You can allow pets and ask for an additional deposit. Avoid one that is a non-refundable deposit, though. A good amount to charge for a pet deposit is between $200 to $500.
Security Deposit Amount
Now that you know more about what the right security deposit amount is, you can make smart decisions about choosing a tenant for your property.
At HomeRiver Group, we have the best property management professionals in the country. Anytime you have a question like this, reach out to us. We are happy to help you protect your rental property.