What Should a Landlord Charge As a Security Deposit?

Collecting a security deposit from your tenants is just as important as collecting the monthly rent. As a landlord, you must protect your interests by requiring a deposit that can be used to pay for any damage to the property or nonpayment of rent. However, if the deposit amount is too high, it will discourage people from renting your property. Here are four things to consider when deciding what to charge as a security deposit for your rental.

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

1. State Law May Limit the 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

Approximately half of U.S. states limit security deposit amounts. 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.

These are statewide limits. You must also become familiar with the laws of your local municipality because there may be 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 security deposit amounts. For landlords, it may 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. Gauging the market is a good idea.

2. The 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 limiting security deposits, then the maximum you can charge is based on the monthly rent of your unit. For example, in Maryland the security deposit limit is two months' rent. If the monthly rent of your unit is $1,000, the 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. Typically, one half or a whole month's rent is considered acceptable.

3. Property Amenities

A third factor in determining the amount required from a tenant as a security deposit are the amenities of the property or of the unit. Some examples of amenities that could warrant higher security deposits are:

• An elevator in the building
• A doorman
• Private parking
• A fully furnished unit
• A washer/dryer in the unit
• A Newly constructed unit
• A gut renovated unit

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.

4. The Competition

A fourth factor to consider when setting the security deposit amount is the amount charged by your competitors for similar units. Landlords find it is often in their best interest to keep their security deposits on a par with other landlords in the area so that tenants do not turn to other units.

For a tenant who is trying to decide between two very similar three-bedroom apartments that are both available for rent at $1,000 a month, the apartment requiring one month's security deposit will be more affordable than the apartment that requires two months' security deposit.