Should You Collect Security Deposits or Move-In Fees?

Managing a rental property requires handling any damage that was caused by tenants, as well as any associated fees. Landlords traditionally required security deposits to help cover the cost of maintenance, but with more states implementing price caps and restrictions, you may be wondering if move-in fees are a better option to explore.

In this article, we’ll go through each option, outline how they differ, and help you decide whether a security deposit or move-in fee is better for your rental business.

What Is a Security Deposit? 

A security deposit is a sum of money — typically one to three months’ rent — that a landlord can charge a tenant prior to moving in. Although the landlord keeps the money during the lease term, the money still belongs to the tenant and must be returned in full if they paid rent each month and did not cause damage.

If you decide to keep a security deposit, you must provide tenants with a security deposit return letter that includes an itemized list of expenses the money will go towards. Failing to provide a fair reason for keeping their security deposit can land you in a legal situation and cost more to remedy.

What Is a Move-In Fee?

Move-in fees are non-refundable fees that cover turnover costs like cleaning, painting, and touch-ups before the tenant moves in. Unlike security deposits, landlords are not held as accountable for how move-in fees are used since they’re not as regulated.

That being said, charging a tenant a move-in fee may help cover the costs of maintaining a rental property. But you’ll want to let prospective tenants know that this is an expense they’ll need to cover if they choose to rent out your property.

How Does a Move-In Fee Differ From a Security Deposit?

There are three differences between move-in fees and security deposits.

1. Security deposits are returned to tenants, while move-in fees are non-refundable.
2. Security deposits are typically a larger sum of money, while move-in fees are typically half of the rent amount.
3. Security deposits are strictly regulated, while move-in fees are not.

Can I Collect Both a Security Deposit and a Move-in Fee? 

As a landlord, you are allowed to collect both a security deposit and move-in fee. If you’re located in a state that heavily regulates security deposits, then charging a move-in fee can ensure you generate enough income to handle maintenance repairs.

However, you should avoid charging too much in initial fees because this can lead to long vacancy periods from tenants not being interested in your property.

A Security Deposit or a Move-In Fee: Which to Collect?

There are two factors that may help you decide whether you want to collect a security deposit or a move-in fee. If your unit is on the more expensive side, then a security deposit is a wise move because any damage caused by tenants will likely require a costly investment. If a tenant is only staying for a few months, then a move-in fee may seem unreasonable to your tenants, considering it is non-refundable.

Overall, it seems security deposits are better for expensive rental properties to cover potentially expensive damage and to demonstrate the tenant’s financial responsibility. And move-in fees are better-suited for longer term tenancies so the tenant feels more justified in paying a fee that will not be returned.

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