While collecting a security deposit is a common practice for most property managers, there are some situations when you may not want to collect one. This is an important distinction to make, especially for newer landlords, as many people believe that there are laws requiring security deposits. However, just because it’s not out of the ordinary for a landlord to ask for a security deposit from their tenants when they sign their lease doesn’t mean that it is necessary. Here are three different reasons that you may not be interested in collecting a security deposit.
Following the law can be more trouble than it’s worth
While it’s important to follow laws when you do require a security deposit from your tenants, some landlords may want to avoid the hassle in the first place. This is because, depending on where your property is located, laws can be very strict to uphold. For example, there are strict guidelines in states like Illinois and Kansas about the timeframe in which you must alert a tenant that you’re keeping a portion of their security deposit. In some situations, it may take you that amount of time just to discover that your tenant is responsible for an issue in the first place, such as a broken pipe or electrical issue that you don’t discover until a new tenant is moving in.
Some states also require you to keep security deposits in a separate bank account, show receipts to tenants, and provide an itemized inventory of costs associated with repairs to prove that the tenant was responsible for damages beyond reasonable wear-and-tear. Even if you have a valid reason for missing a deadline or making a small mistake in how you execute your security deposit, you can lose even more money in court if a tenant presses charges. Cities like Chicago are notoriously hard on landlords in tenant landlord disputes, making it even riskier to require a security deposit in the first place.
Security deposits might dissuade good tenants
In some situations, requiring a security deposit may also make some tenants less likely to rent from you. Particularly if you are trying to rent a unit quickly to avoid losing money each month while you wait to fill it, it can be vital that you don’t give a tenant any reason not to apply to rent your apartment. While there’s a common belief that requiring a security deposit attracts only good tenants, that is simply not true. There are plenty of other ways you can determine that a tenant will be responsible and able to afford your property, including running background and reference checks. Simple online solutions such as Turbo Tenant’s landlord software can also help you attract and learn more about your applicants so that you can make an informed decision about who you lease your property to.
A move-in fee can provide the same general benefits
Sometimes, it’s easier to just require that tenants pay you a move-in fee in lieu of dealing with the regulations associated with security deposits. These kinds of fees have far fewer laws governing how they are handled, and one reason for this is that no portion of a move-in fee is ever returned to a tenant. Since the landlord gets to keep all of the money, they are much easier to keep track of, saving you and your tenant a headache when they move out.
Ultimately, the choice is yours when it comes to deciding whether or not to collect a security deposit from your tenants. That being said, there are plenty of perfectly legitimate reasons that you may not want to collect a deposit when you’re renting out your property. From making your unit more appealing to saving you burdensome administrative tasks, it’s definitely worth thinking twice about whether or not you want to deal with security deposits as a landlord.