What To Know About Security Deposits

“Our only security is our ability to change” John Lilly

Although the rental market doesn’t appear to be quite as hot as last year, it is still pretty good. With vacancy rates for Orange County at 3.6%, Los Angeles County at 3.9%, and the Inland Empire at 4.9%, we landlords are in a good position to request a larger security deposit from prospective tenants.

WHAT’S ALLOWED
California law allows for two times a month’s rent for unfurnished units and up to three times the monthly rent for a furnished one. Of course, you never want to call it last months rent. If you do, you are stuck with that amount as the last month’s rent, even if the tenant stays for years and you have a number of rent raises. If you call it last months rent, it will be just that. Always consult with your real estate attorney and your apartment association before you move forward, just to make sure no laws have changed since your last vacancy. Always a great idea to go over the unit with the new tenant before they take possession and have them sign a checklist regarding the condition of the unit. Taking pictures is also a great idea.

ADVERTISING
I personally don’t have a problem listing the security deposit requirements when you advertise on Apartments.com or Zillow. Even Craigslist will ask when you place the ad about security deposits. There are a lot of people out there looking for apartments for any number of reasons. That number has grown since the pandemic.

WHY DO IT?
We know that a security deposit is refundable and if the unit is maintained as agreed, you will return it to the tenant within 21 days of getting possession. That is the upside, but what about the downside? A tenant can do a lot of expensive (to you) damage to your unit and this is your opportunity to cushion yourself against potential damages. Yes, you can come after a former tenant in small claims, but it is questionable when or if you will recover anything. Plus what about your time and effort? Another thing I have found is that tenants with larger deposits have a very strong tendency to pay on time, not cause problems and leave the unit as they found it. Not a scientific study, but it has worked every time for me.

GIVE IT A TRY
With a strong rental market, now is a great time to ask for that larger security deposit- even if you never have before. You can institute a new policy, as long as it’s legal. What do you have to lose? If the market doesn’t bear the larger deposit, you will know very quickly. Also, you will still have the names and numbers of those who have already inquired. It even gives you a marketing point- a reduced security deposit requirement! I think it’s worth a try. It will result in more responsible tenants and additional peace of mind for you, the owner.

“To uncover your true potential you must first find your own limits and then you have to have the courage to blow past them.” Picabo Street

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!