How Much Should I Charge For A Security Deposit?

People often ask how much of a security deposit can they charge on multi-family units in California.

The law in California says that you can charge up to twice the monthly rent and up to three times the monthly rent if the unit is furnished.

AS RENTS GO UP, YOUR DEPOSIT WILL PROVIDE LESS SECURITY
Over time you should and most likely will raise the monthly rent. Landlords rarely ask for an increased security deposit. For this reason, the unit that you rent today will protect you through one month of unpaid rent, but over time, as rents rise and your security deposit remains the same, it will be less and less than a month’s rent. Have you ever had a tenant move out where the rent was $1,000? and the security deposit was $500. or less?

YOU WILL BE DEDUCTING DAMAGE, CLEANING, AND REPAIRS FROM THE SECURITY DEPOSIT
When you do refund the deposit, you will deduct any costs associated with getting the unit in rent-ready condition, as it was when you rented it. If the costs exceed the security deposit, you can go after the former tenant, but that can be quite difficult and time-consuming.

COMPETITIVE RENTAL MARKET
In this rental market, there is a lot of competition for vacant units. That being said, why not protect yourself and your investment by getting the maximum security deposit? It is much easier to get an additional deposit prior to move-in than afterward.

UNPLANNED OCCURRENCES
We landlords got a rude awakening with COVID and many lost significant amounts of income. A larger deposit wouldn’t restore all the losses, but in may cases, it would have helped. We are still not completely out of this pandemic and no one can predict the future, so, hopefully, we can make changes that will benefit us down the line.

What we at PRS PROPERTIES CAN DO. We can discuss with you the current rents in your area and supply you with comparable rental prices for similar properties. Before you hire a manager, make sure the compensation is fair to you! We can also look at your building for changes that might allow you to get a higher value in order to create value without huge expenses for your building. We can help you to get the maximum value for your property, should you decide to sell, or the maximum return if you are planning to keep your building.

We always have many investors who are looking for “as-is” properties and are willing to purchase with low rents, a moratorium, or even with a problem tenant in place. We have put together numerous transactions over the years which involve properties that are not listed for sale. Many investors are in 1031 exchanges and need to identify a replacement property before their 45-day identification period runs out.

Should you decide to put your property on the market, we will put together an aggressive, targeted, and professional campaign to get your property sold fast. We have been doing this for over 40 years, and we will use all the tools available to bring you the most dollars at closing. If you are thinking of selling or are just curious about the value of your property, don’t hesitate to give us a call.

Remember – KNOWLEDGE IS POWER!