You're about to have a few vacant apartments to fill. This means you must prepare the units, find good tenants, and create the leases.
You also have to choose the security deposit amount. As you think of this, you might wonder, "How much should a security deposit be?"
It's a vital question to answer. This guide contains information to help you determine how much to charge for security deposits.
Consider the Purpose of a Security Deposit
How much is a security deposit? It's helpful to begin by examining the purpose of collecting one.
A security deposit protects you. When you rent to others, you let them use your property. This is your investment that you own.
Therefore, collecting a security deposit gives you protection for your investment.
Another form of protection is your tenant-selection process. Choosing good tenants is critical. Good tenants pay their rent and won't damage your property.
It's also important to know that good tenants can come up with a security deposit. They should have reliable jobs and incomes.
Use caution when renting to someone who can't come up with a security deposit. It could indicate financial problems. In turn, this could cause the tenants to face challenges paying their rent.
Base It on the Rent Amount
The average security deposit is the rental amount for the unit. For example, you may charge a $1,000 security deposit for an apartment with a $1,000 monthly rent. Charging this way is the most common method.
However, many landlords charge the first and last month's rent as the deposit. This method requires a $2,000 security deposit if the rent is $1,000.
You can also add a pet deposit fee. If you allow tenants to have pets, the pets may destroy the units. Because of this, you can charge an extra security deposit.
Factor in Other Things
You can also factor in a few other things when determining the security deposit amount.
One item to factor in is a person's history. For example, you might charge more for a person with an eviction on their record.
Of course, you must follow the law when handling tasks relating to security deposits. Therefore, it's better to create a schedule for your charges. Then, follow your schedule for all your rentals.
Hold the Deposits
Regardless of how much you charge, you should hold the deposits in a separate account. Security deposits are refundable, but you can also hold back some of the funds to cover damages.
If a tenant fails to pay their rent, you may be able to keep their security deposit to cover the rent. Of course, you should send a lease non-renewal letter to the tenant, informing them that they must move out.
By holding your deposits in a separate account, you'll always have the funds to give back when tenants vacate their units.
How Much Should a Security Deposit Be?
As a landlord, you should ask, "How much should a security deposit be?" Use this information to determine how much you should charge.
PMI Santa Cruz is a reputable property management company. Our company has more than 20 years of experience in real estate.
We pride ourselves in excellent services that property owners can trust. We can help if you need help setting security deposit rates or other property management services.
Reach out to us to learn how we can help!