One of the hardest jobs for rental property owners to do is determine how much they should charge for the security deposit. The security deposit is an essential component to being a landlord, and it protects the property owner from any damage the tenant may cause while they are the resident.
How to determine security deposit costs
It is always a good idea for landlords to take time and put thought into how much they charge for the security deposits. While having the understanding that the more you charge may affect how quickly you can find a resident, it is also important to price it high enough so that you are covered for damages at the end of the lease. The following are insights into how to make the tough decision as to how much to charge for security deposits.
Charge the maximum amount
In an effort to make things easy and to maximize profit, many landlords simply charge the most they are allowed to for the security deposit. While this may seem like the best way to do things for some, it does have drawbacks.
Charging the most possible might make it harder to find interested tenants, make it more challenging for the tenant to avoid monthly payments and hurt the trust between the tenant and the landlord. With that said, there are times when charging the most possible is necessary, such as for tenants who have a history of damaging properties, not fulfilling the lease agreement, etc.
Charge twice the monthly rent
Another standard way of charging for the security deposit is to charge twice the monthly rent. This is more fair and easier for prospective tenants to understand, but it is still often a difficult cost for many tenants to come up with at once. However, this is a good option for tenants that may not have much history with renting or a few minor issues with their history.
Increase the price of rent
Some prospective tenants are simply not able to come up with the first month rent, the security deposit, pet fees, renter’s insurance, moving costs and all the other costs associated with moving into a new place all at once. One great way to build trust between the landlord and tenant and make it easier to find tenants quickly is to add an option for paying more rent each month rather than charging a security deposit. Of course, the downside is you will not have the security deposit available at the end, but it works well for landlords as well as the tenant in many instances as they get to keep the profit each month.
The bottom line
We encourage landlords to consider all factors when deciding how much to charge for the security deposit and understand the pros and cons of each method. It is also helpful to be flexible to different plans depending on the renting history of the tenant and their preference, which helps rental property owners stay protected while also making the move easier for the tenant.
EXIT Realty Bob Lamb & Associates is Murfreesboro’s most innovative real estate team.
EXIT Realty Bob Lamb & Associates
2630 Memorial Blvd, Murfreesboro, TN 37129