What Should I Charge for a Security Deposit?

System - Wednesday, April 5, 2017

When you’re just getting started in real estate investing, or are a new landlord, you may be wondering how much to ask for a security deposit. This is a good question to consider, and it’s one that goes beyond just strategy — there are also legal implications in Pennsylvania. To help you get started strategically and legally, here’s a look at how to determine a security deposit in Pennsylvania that’s both fair and effective.


Security Deposit Strategy


A security deposit is meant to protect the landlord from financial losses associated with damage, loss of rent, or other liability that may occur while the property is rented to a tenant. How much is enough? Some landlords choose to charge the maximum allowed by their states in order to increase their protection. Others may only choose to require the maximum deposit in high-risk situations, such as if the tenant has poor credit or has been evicted before. You may also choose to require a higher deposit or take an additional deposit if pets will be living in the unit or property.


What About the Market Conditions?


Of course, as in all things related to real estate, the current market conditions matter. If supply is high and demand is low for rentals, your prospective tenants will enjoy options and they may balk at paying a maximum deposit. In fact, your competitors may be offering deals and low deposits in order to drive more prospects in their doors — and to raise occupancy. It’s tempting to always ask for the state maximum in Pennsylvania, but it’s not always beneficial to your bottom line. Having a large deposit is nice, but it’s not so great if it’s depressing your occupancy.


Choose an Alternative


There’s always the possibility of a little give and take. Maybe you ask for a lower deposit in exchange for a slightly higher monthly rent, or perhaps you ask for a larger deposit only in cases where a property is furnished. Prospective tenants always want to feel like they’re getting something, and these alternatives allow you to offer them something while also protecting your investment and securing the best possible deposit.


What Is the Limit in PA?


As mentioned, there are laws that govern how much of a security deposit you can require. The security deposit limit in Pennsylvania is two months’ rent for the first year and one month’s rent for subsequent years. Laws require that a security deposit is returned by the landlord within 30 days of move-out. The law also requires all security deposits of more than $100 be deposited by the landlord into an institution that is state or federally regulated. This isn’t as onerous as it may sound, as nearly all credit unions and banks are regulated at the state or federal levels.

Consider Your Investment

There’s no single answer to the question of what is a fair security deposit at your property. Only you can know the true value of your investment. It’s also important to remember that no security deposit can completely protect you from damages. The best approach is to do your work on the front end via marketing and tenant screening to ensure you’re getting the best possible people into your units and properties. By getting the best possible tenants, you greatly reduce the possibility that a security deposit even comes into play. 

Don’t take risks by letting in poor tenants just to keep your occupancy afloat. This is a losing game that can cost you big in the long run, even if it does deliver a short-term benefit.


Get the Property Management You Need


A good local property manager will offer expert guidance on a wide range of property management topics. At Harrisburg Property Management Group, we are your source for real estate experience and knowledge in central Pennsylvania. We can recommend the right security deposit for your unique situation, and we can also provide comprehensive property management services that help you maximize your investment.

If you often find yourself wondering about security deposits and other real estate issues, make sure you have an expert on your team. When you choose a property manager that has local knowledge, as Harrisburg Property Management Group does, you’re securing a new member for your team that can help you make the most for your money.

Contact us today about property management in Central PA. 

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