The Thing With Security Deposits

I’m starting to notice a trend when it comes to the last month of a tenant’s lease and it’s not a good one. I can’t believe I didn’t notice it before but better late than never, right?

If a landlord is practicing good business, then a tenant will mostly leave for reasons like cheaper housing or job relocation rather than dodging an eviction or being unable to come up with the rent. When the tenant leaves, the security deposit must be returned minus the costs of damages. Since the deposit is usually the same amount as rent, a tenant really doesn’t have to pay the rent and could keep it as the returned security deposit. I mean, what is a landlord going to do? Take the tenant to court to pay the rent only to give it back as a security deposit 3 weeks later?! It’s a waste of money and I don’t like to make things complicated, so I let the tenant keep the rent as their returned security deposit. The problem with this is that I don’t get rent for the month, and if there is any damage I have to pay for it out of my own pocket. I can solve this problem in two different ways.

The first way is to demand rent on the last month of the lease. If it’s a good tenant then he/she will do it anyway, but I really don’t like it. It’s tedious and makes things complex. The second way is to lower the initial security deposit to a little over half the amount of rent. Say, for example, I rent out Stan’s old unit for $700 and ask for a $400 security deposit. On the last month of the lease, the tenant would still owe the difference between the rent and the returned security deposit which is $300. That’s $300 more than I would have had than if the deposit was the full $700, and if the tenant is good then the damage to the unit should be very minimal. They get their returned deposit, I get something for the last month of the lease, and everyone is happy. I think I’m gonna try the second way for a while.

My new policy is to charge a little over half the total rent as a security deposit. I’m sure there are plenty of variables that affect the profitability of this new policy, but I’ll deal with refining the rules on a case by case basis. I’ll try it out for a while and, if it works, then I may have just found a way to make money PLUS get tenants a lot faster than other landlords. Would a prospective tenant rather pay $1400 ($700 rent and $700 security deposit) to move into an apartment or $1100 ($700 rent and $400 security deposit)? Would a landlord rather have nothing during the last month of the lease or a little under half of what the tenant is paying for rent? Yeah, that’s what I thought too.