How to Set the Security Deposit Amount

How Much to Charge Tenants

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Collecting a security deposit from your tenants is just as important as collecting the monthly rent. You want to charge enough to protect yourself from damage and nonpayment, but not so much that tenants will be discouraged from renting your property. Here are four things to look at to set the right security deposit amount for your rental.

  1. State Law
  2. Monthly Rent
  3. Property Amenities
  4. The Competition

1. State Law May Limit Security Deposit Amount

How much you can collect from a tenant as a security deposit may be limited by the state where your rental property is located. Twenty-five states have no limit on the maximum amount you can collect and 25 states, plus the District of Columbia, do set a maximum limit on how much you can collect.

  • States With Limits

About half of the states in the United States set a limit on the security deposit amount. Each state sets its own limit. In states that do have a security deposit limit, such as North Carolina and Nevada, the amount you can charge varies from as little as two weeks' rent to as much as three months’ rent.

As an important note, these are statewide limits. You must also become familiar with the laws of your local municipality, because there may be different or additional rules and regulations that you must follow that are not part of the statewide laws.

  • States Without Limits

The other 25 states, including Florida and Texas, do not place limits on the security deposit amount. In states such as these, a landlord has the ability to charge a tenant any amount he or she chooses. It might take some trial and error to determine the sweet spot that is enough to cover potential damage, but is not so high that it keeps prospective tenants away.

2. Rental Price of the Unit

A second factor that influences how much you can collect as a security deposit is the amount of monthly rent you charge for your unit. This price will influence the amount of the security deposit regardless of whether your state has set limits on the maximum amount you can collect. 

  • States With Limits

If your state has specific laws which limit security deposits, then the maximum you can charge is based on the monthly rent of your unit. Say your rental property is in Maryland, where the security deposit limit is two months' rent. The monthly rent of your unit is $1,000. Therefore, the most you can charge as a security deposit is $2,000, or two months' rent.

  • States Without Limits

Even if your state has no limit on security deposits, the security deposit you collect will still be based on the monthly rent of the unit. It has become common practice that security deposits are based on some portion of the monthly rent. It is usually accepted to ask for the equivalent of half or whole month's rent.

For example, if the monthly rent is $1,000, a security deposit of $500 would be a half month's rent. A security deposit of $1,000 would be a whole month's rent. It is uncommon to ask for other percentages, such as one-quarter or one-third of a month's rent.

3. Property Amenities

A third factor in determining how much a tenant's security deposit should be are the amenities of the property or of the unit. Some examples of amenities which could warrant higher security deposits are:

  • Elevator in Building
  • Doorman in Building
  • Private Parking
  • Fully Furnished Unit
  • Washer/Dryer in Unit
  • New Construction
  • Gut Renovated

Of course, if your state has a security deposit limit, then you cannot charge a tenant more than that amount for the security deposit, regardless of the amenities the unit has.

4. The Competition

A fourth factor to consider when setting the security deposit amount is how much the competition is charging. Landlords find it is often in their best interest to keep their security deposits on par with other landlords in the area so they have an easier time finding tenants.

For example, there may be two very similar three-bedroom apartments available for rent. The landlords are both charging $1,000 a month for rent. The difference is that one landlord is requiring one month security and the other landlord is requiring two months' security. Prospective tenants are more likely to rent the apartment asking one month's security because it is more affordable.