Every landlord faces the problem of deciding how much of a security deposit to request from tenants, and whether to ask for a deposit for additional rent. If you ask for too much, you narrow the field of prospective tenants; if you ask too little, you expose yourself to too much risk. 

Three guidelines are: 

1. Don't waive the deposit requirement, and avoid accepting payments of deposits over time. Landlords hear every imaginable sob story. often even before money changes hands. You may be impressed with the references and the tenant, but when it comes time to collect a deposit, you may be asked to waive it, or to give the tenant a few days to get the money, or to allow payment in installments. These are danger signals. You will have problems with this tenant in the future, perhaps every month when the rent is due. The deposit gives you some leverage, especially when you colleclt both first and last month's rent. Establish a firm policy that the full deposit¡ªincluding cleaning and security deposits and advance rent¡ªhas to be paid in full up front, before anything else occurs.

The purpose of the deposit is to ensure that the tenant has some financial stake in caring for your property. Any of these requests is a sign that the would-be tenant has problems planning financially, so how is the individual going to be able to make rent payments on time? 

2, Set the amount of the security deposit based on rent and other special circumstances. The security deposit should be set according to the level of rent, plus extra deposits you require for smokers or for people with pets. You may set the security deposit as being equal to one-half of a month's rent, or equal to a full months rent, for example¡ªand then add additional deposits for situations that could lead to special cleaning problems later. If you also collect the last months rent in the form of a deposit,, you have some security against a tenant being late wit the rent. In a case where you need to evict a tenant, having the last month's rent gives you leverage and gives the1 tenant even incentive to cooperate with you.

A large deposit restricts your potential tenant pool but also disqualifies many marginal or deadbeat applicants. In contrast, more liberal policies broaden your tenant pool but also expose you to risk. The policies you depend to some degree on the strength of the tenant rental market.

3. Establish the deposit to protect against both damages and unpaid rents. Laws vary from one state to another but you should be aware that you probably cannot apply cleaning deposits against unpaid rent, at least not automatically. You may need to distinguish two separate deposits. One is intended to defer the costs of cleaning after tenants if you need to; the other protects you again lost income when tenants do not pay their rent. Some tenants look on moving as an opportunity to leave a lot junk for the landlord to dispose of, which is time-consuming and expensive. If you collect only a half month's and a tenant does not pay next month, you do not have enough deposit to cover all your costs, it will probably take at least one month to evict the tenant, which means] half month's rent is lost; and if you need to clean up after that tenant, that means more expense and lost time.

Some landlords expect to receive firs* and month's rent in addition to a cleaning deposit. While might place a large burden on a would be tenant, it will be the only way to protect yourself from large losses. A lot depends on the type of property, its location, and the kind of tenants you attract to that property. While first-and-last policies are common to leases, a month-to-month agreement is more flexible, often requiring only first months rent and a cleaning deposit.

If the initial period is less than one full month, prorate the first month's payment. For example, if you rent to someone on the sixth of the month and the month has 30 days, your first month's rent should equal 24/30ths of the full amount.

 

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