A security deposit is a sum of money which you collect from your tenant on top of the first month's rent at the beginning of the lease. Last month's rent is considered part of the security deposit paid upfront. It is in the landlord's best interest to collect a security deposit from his tenants for the reason that landlords need to protect themselves from the costs of any damage that could happen within the lease period. Losses in rental payments can also happen when a tenant decides to terminate the lease early or stops paying his monthly rent. 

On this topic, several questions arise:

1. How much can you request as a security deposit?

2. What other factors will affect how much you price your security deposit? 

3. How much do you collect as a holding deposit from potential tenants? 

4. If someone decides to apply as a tenant after paying you a holding deposit, will the holding deposit get applied to what he owes you at the beginning of the lease?

5. How long do you have to return the security deposit at the end of a lease when a tenant ends the tenancy?

6. When can you keep the security deposit? Are you allowed to deduct from the deposit?

Let's talk about the first of these 6 questions. How much can you request as a security deposit?

Many landlords wonder about how much they can take as a security deposit from their tenant. The answer is MULTI-FACETED. 

On a basic level, you need to know the law. Take note of the following limits that apply to the security deposit you collect from a tenant. 

1. Unfurnished housing/condo unit

For an unfurnished property, you are going to collect up to two times (2x) the monthly rent as a security deposit. For example, you have a unit which you rent out for $1,000 monthly. The most you can collect at the beginning of the lease in addition to the first month's rent is $2,000. This means that you'll be collecting a total of $3,000 at the start of the lease. 

2. Presence of waterbeds

If you allow a waterbed within the premises, you can charge up to two and a half times (2.5) the monthly rent as a security deposit. For example, if you have a unit which you rent out for $1,000 monthly and a tenant has a waterbed, you will collect up to $2,500 in addition to the first month's rent (which is $1,000). In total, you get $3,500 at the start of the lease. 

3. Furnished rental

If you rent out a furnished rental, this will make your property more marketable but presents the risk of your furniture getting damaged. That may include your couch, television, and other appliances. It's reasonable to charge up to three times (3x) the monthly rent as a security deposit. For a rental property that costs $1,000 a month, you can charge up to $3,000 for the security deposit. Your total collection at the start of the lease would be equal to $4,000. 

4. Holding deposit

Some people may be interested in your rental unit but are unable to decide whether they should apply as tenants or not. You can charge them a holding deposit if they request you to hold or reserve the property for them for a certain period of time. This will give them time to make their decision.

For the rest of this lesson, existing Landlord Prep students should log-in to the module entitled Between Tenants - Deciding Rent & Rental Terms (Security Deposit).

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