Should You Collect a Move-In Fee or a Security Deposit?

It may seem like an argument of semantics to draw a distinction between a move-in fee and a security deposit, but they really aren’t the same concept. In fact, depending on your state, knowing which to collect could make a big difference. It’s true that the general purpose for each of these is to protect against potential damages to the property or to cover unpaid rent.

However, it’s important to remember two things about the security deposit: there are regulations regarding deposits that can vary state by state, and the security deposit must be returned to the tenant when the rental period is over. With a move-in fee, the landlord simply gets to keep it.


Advantages of a security deposit

With that in mind, it may seem like collecting the move-in fee is always the right move, but that isn’t necessarily the case. The first advantage to the security deposit is that it will be a larger sum, often amounting to one and a half month’s rent. This gives you a bigger safety net in case of damages or unpaid rent. A move-in fee will typically amount to half a month’s rent. Getting to keep this is great if all goes well with the tenant, but you will face a greater burden if there are issues.

Another big advantage of a security deposit is that the tenant is aware that they could lose it. In most states, a security deposit must be returned to the tenant no later than 30 days following the end of the lease. There are exceptions to this, though. Landlords are allowed to make deductions from the deposit in cases of damages, cleaning fees, and unpaid rent. This is a great incentive for tenants to follow their lease agreements closely, and it can save landlords a great deal of trouble.


Complexity of security deposit law

As mentioned earlier, each state has its own regulations for how security deposits are handled. Sometimes these laws can even vary based on jurisdiction. Depending on where you live, you may find security deposit laws to be more trouble than they’re worth. A possible example of this is if you own rental property in Seattle. Washington’s security deposit regulations stipulate that a security deposit must be returned 21 days after the lease ends, instead of the usual 30. It also states that if a tenant is unable to pay the deposit at once, they are allowed to pay in installments over the course of six months. In a case like this, it might be more attractive to a landlord to simply collect a move-in fee instead.

It’s incredibly important for landlords to keep up with regulations, as some states have harsh penalties for any slip ups. For example, under California law, if a landlord is taken to court for a security deposit dispute and is found at fault, they must pay double the value of the deposit in damages in additions to any legal fees taken on by the tenant. If you aren’t absolutely confident in your ability to be flawless with deposit regulations, a risk like this might be enough to scare you away.


Overburdening tenants

Another possible disadvantage of collecting security deposits is that they may be asking too much of a tenant. Again, depending on where you live and who you’re marketing your property toward, it may be impossible for potential tenants to afford the first month’s rent plus a deposit. This is particularly true of high rent areas. You’ll have a hard time filling your vacancies if people can’t even afford to move into your property. If a renter can come up with the first month’s rent, and their tenant credit check indicated no problems, they should be able to continue paying. In a case like this, opting for a smaller move-in fee is probably worth it.

Ultimately, it’s the landlord’s prerogative to decide what kind of fee to collect. Security deposits are still the norm and are recommendable in jurisdictions with simple laws. Just don’t be afraid to explore alternatives in unusual cases.