The True Importance of a Security DepositYes, you are welcome to call me Captain Obvious on this one. While I feel like this notion is extremely apparent, it actually wasn’t to me until recently. Therefore, I think it is worth addressing.

In my case over the years, I have moved in numerous places where I pay “x” amount of a security deposit and when I move out however many years later, I get the same “x” amount of security deposit back. Simple. I wondered every time that process occurred, “What is the point of even putting it down in the first place when I just get it all back?” I think I knew the point, which was so any damages incurred by me would be covered, but those damages never realistically happened so I just figured it was merely a paperwork process of sorts that needed to be done.

Then I became a rental property owner. Good grief to the universe above! Tenants can seriously be pains in the… I’m sure I don’t have to say it. I use the example all the time of the property I have that went through two back-to-back evictions. I can unfortunately add to that story now and tell you that the perfectly good tenants most recently in there apparently took a job offer elsewhere, left the house mid-lease, and didn’t tell anyone until well after they were gone. Fan-friggin-tastic. Three sets of tenants in a row in that house! I truly never realized the true impact of abysmal tenants on my checkbook. I digress.

The Value of the Security Deposit

Sadly, it has taken me four bunk tenants (three from the house above and now some tenants from another property) to realize how important a security deposit really is. Even when the first couple tenants’ security deposits were being used towards turnover expenses, I still wasn’t connecting the dots with the value of that money. I’ll tell you what I always had in my head about security deposits, and then I’ll tell you what I realize now about security deposits and I think you will see the distinction.

What I used to understand about security deposits-

The money a tenant puts down for a security deposit will help me pay for any damages they cause.

What I now understand about security deposits-

Whatever money a tenant does not put down for a security deposit has to come out of my own pocket!

Translating both of these to a real-life scenario should really drive this home. A tenant puts down a $750 security deposit.
Translation of my old thought process about security deposits-

“Yay! If anything happens to the house, I have $750 of free money to use towards fixing it! Yay!”

Translation of my new thought process about security deposits-

“Oh, uh uh, only $750 of free money? You must be kidding me. That leaves me with $1250 of expenses I have to cover! Uh uh. Not okay!”

See the distinction? So far no turnover from bouncing tenants has cost me less than $2400 (which is very much related to my irritations with property management because that never should have been the case). Even the example above is more generous than reality saying I only had to cover $1250 since in actuality it has been more like $1650, if not more!

Moral of the Story?

Don’t skimp out on security deposits! They may end up being the only thing that keeps any money in your pocket. Whatever you don’t charge, you will have to pay yourself.

A Good Thought

… and one I had never thought of myself. I recently moved into a new place in Venice Beach. Granted, it’s the most I’ve ever spent for rent in my life (and the place doesn’t even have a kitchen), but for that area I’m considered to be paying a “low rent”.

The owner of the building requires anyone in the “low rent” category to pay a TWO months security deposit. Holy kidding me! I gawked at the worthlessness of me having to pay that much out of pocket just to move in and not seeing that nice amount of money until I move back out. Not a day later I found out about some new expenses the tenants who left one of my properties were now costing me, and suddenly the light bulb went off.

Read The Rest On BiggerPockets.

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