Out to Put a Dent in the Multifamily Universe

Apartment Budgeting: Forfeited Security Deposit

Hope your Tuesday is off to a good start. I am still in the vein of Other Income as I venture through these budget installments.

Forfeited Security Deposit 

Defined: A fee taken when an applicant fails to follow through with physically moving into your community after they have been fully qualified to do so.

***As a note of clarity: the security deposit in the refundable portion of the deposit collected at the time you collect a signed application.

The justification for charging and collecting this fee is that you and your team have spent time and resource getting an application processed. That is to include completing the application, running credit and criminal background checks and calling the applicant to let them know that they are qualified.

If you do all of that only to have the applicant call you at the last-minute to cancel, you should be paid for your time. That is what the forfeiture of security deposit covers.

How much?

This various by market and sub-market and in some cases is governed by state and local laws so be sure to do your research.

For reference fees in the St. Louis Apartment Market range anywhere from $150 to $500 with extremes on either side.

Lease Application

Make absolutely certain that you clearly define this practice and the amounts you charge for it in your lease contract. Void of the language, you will have a tough time collecting on it. Make sure the language is in concert with the laws that govern such things in your respective markets. And, don’t be shy about collecting it. No matter how customer-centric you are – you don’t work for free.

That is it for this week – I have left some nuggets out of the conversation on the outside chance that we get some comments. So, let us know what you think if you have a free moment today.

Your lovin’ the budget series multifamily maniac,

M

About Mike Brewer

Out to put a dent in the multifamily universe. Love compelling conversation...

  • Lisa Z

    I am definitely an advocate for collecting the forfeited deposits.  The property I am currently on averages 10 per month at $150 each, which equates to an additional $18,000 per year in income.  We spend a lot of time touring, talking, walking through the leasing process with prospects and I definitely believe there should be a consequence for failure to move in on their part.