What do if I’m not allowed to ask for a security deposit

What do I do if the law of the land where are my properties does not allow me to ask for a security deposit?

Answer:

If you're not allowed to ask for security deposits you may have several alternatives depending on your location, and you should definitely consult with a lawyer to verify what is and isn't allowed.

In any case, you should do property inspections at the start of the lease, 6 months into the lease. and at the end of the lease, so you can evaluate what is not normal wear-and-tear, what damages have incurred because of the tenants, and so on. You can then ask the tenants for money for repairs of the damages they caused. Be sure to be vigilant and ask for the money right away, as soon as you see the damages, and not wait until the end of the lease.

In some places, you can ask for the last months rent in advance, commonly known as first and last months rent. Basically the last months rent is meant to ask a security deposits of sorts. However in some locations this also isn't permitted, so you definitely want to get legal consult before applying this option.

You can require the tenant to purchase renters insurance. The downside is that most renters insurance is limited, which means in that most cases you may have to find the proper insurance and require they purchase that specific insurance plan. You will also most likely want to explain to them that this is in lieu to a security deposit.

Another option is just to charge your tenant a higher rent, although this may be difficult in your market, so that the security deposit amount is covered within the rent. In other words, if your rent is $1000/mth, you could charge $1100/mth, in essence giving you a $1200/year security deposit that you get to keep no matter what.

If however the market is too competitive for that, you can offer some kind of cashback reward at the end of the lease if the unit is kept in good condition. So for example in the previous example, you would charge $1100/mth and when the year is up, you would give them back up to $1200 depending on the condition of the unit.

Again,with all these options, it's always best to get legal consult before implementing any of them. Every state, city, suburb, etc. has different laws and bylaws, so you definitely want to verify that you can go ahead and proceed with your plan.

In any situation, the biggest thing you can do is keep track of your properties while you're renting them. Always be on the lookout for any issues and address them right away. Don't wait until the end the lease to address them and try to get money from your tenants after they are gone. It's much better to address them as they happen.


Views: 2158        Posted on: Apr 18 2012        Tags: Rental, Security Deposit, Lease, Property Management, Landlord