In this video, Eli discusses security deposits and fees for rental properties. What are they and how much can you charge?
This information is an excerpt from the Landlord Gurus Ask Us Anything Free Webinar.
Transcript
Anush in New York says, “How much can I charge for a security deposit on a rental house?” So, the first thing to keep in mind is that it will depend on your location. As with many of these questions that we deal with, you really have to be on top of either studying up or getting consultation with lawyers or Rental Housing Association resources who can give the local laws so that you make sure you’re compliant and safe.
We’ll post some articles that we’ve written on some of these topics, along with our recording of this. For example, we’ve written an article, which you can find on our site, is everything property owners should know about security deposits. I’ll briefly touch on what we cover there, but, a lot of locations, Seattle being one of them, have limitations on the deposits and fees that you can collect. [In Seattle], it is, including application fees and any cleaning fees, et cetera, it can’t be more than one month’s rent that you can collect in the form of deposits and fees. There are a couple of different forms of deposit that are commonly used. Many of you will be familiar with them. I think mostly when people say deposit, they mean a refundable security deposit.
And, because it’s refundable, you have flexibility in how you use it. If there’s anything left due at all or any damages or any cleaning to be done, you can use that to cover outstanding utility fees, late fees, or rent that hasn’t been paid, repairs, or cleaning, at the end of a tenancy.
So that’s a refundable security deposit. You can also have fees that you say right up front, I’m going to charge you $200 when you move out to cover the cleaning. I see where that comes from because sometimes, people move out, they think they’ve cleaned and it’s not move-in ready, so you end up having a cleaner anyway.
But where you have limitations on the amount that you can collect, I think it’s best to leave it as a security deposit that is refundable and can be used for whatever is needed. And then the last form is, prepaid rent, which is often first and last, is what people will say, first, last and deposit. That often can add up to three times the monthly rent, which is a lot and a lot of renters can’t afford it.
In some places, it can’t be too much. So, at any rate, we recommend going generally with the refundable deposit. That’s held through the duration of the occupancy and is applied at the end to anything that’s outstanding. Something you really need to note here is that in most states, if not all, you have to hold those security deposits in a dedicated separate bank account.
Also Read: TheGuarantors: Rent and Security Deposit Insurance for Landlords
Those funds cannot be touched or used in any way during the tenancy. It can only be applied to anything that’s left due at the end of the tenancy. Collecting, cleaning, or pet fees can sometimes make sense. You have to think about the combination of different amounts that you’re collecting and what the optimal is for your case.
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