How to Calculate Rent Security Deposits


As a landlord, you have quite a few things to do before you rent out that house or apartment. You have to test all the appliances to make sure everything is in good working order, clean the entire living space, and maybe even repaint. Just as importantly, you have to figure out how much to charge for rent and the security deposit. Charging too much may scare off otherwise ideal tenants, while a low security deposit may not cover all damage after a tenant leaves.

Research the laws in your state and city regarding security deposits. Some states limit the amount you can charge. For example, in California you can charge no more than two months’ rent as a deposit for an unfurnished house or apartment. Some states, such as Delaware, allow a higher deposit if the tenant has pets.

Consider the kind of tenant you are trying to attract. You might find an ideal middle-class tenant who could easily afford the monthly rent but not have enough in the bank for the first and last months’ rent as well as a deposit equal to three months of rent. Charging a high security deposit will stop some people from applying, and you will have to weigh the pros and cons of this decision.

Assess the value of the property you wish to rent out and the potential for serious damage to the property. If, for example, the house or apartment is furnished with irreplaceable and fragile antiques, you should consider charging a higher deposit than you would if it were furnished with modern, affordable furniture.

Decide whether you’re willing to accept higher-risk tenants and set your deposit accordingly. Think about as many factors as possible and make clear-cut decisions. Figure out your stance on water-filled items that could break and cause water damage, such as waterbeds and fish tanks. Consider whether you would be willing to accept smokers despite the possible smell of smoke that would remain after the tenants moved out. The more willing you are to accept higher-risk tenants, the more you can justify charging as a deposit.

Create a clear-cut pet policy about which, if any, pets you are willing to accept. For example, you may be comfortable with your tenant having a medium-sized dog that stays only outdoors, but not a small dog who would live indoors and potentially chew on window frames or furniture. You may not mind one cat, but the idea of two or three may make you concerned about potential clawing damage to the carpet. Charging a higher deposit for tenants with pets is reasonable.

Ask other landlords about their deposits to get a sense of the average rate in your area. You can also do this research online or by looking through the newspaper; find the listings for nearby rentals and compare the deposit rate to the monthly rent.

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