Key Steps In Collecting a Security Deposit and the First Month’s Rent

Congratulations! The applicant for your rental property has been screened and approved. As a landlord, there are many things to think about to ensure your tenant is moved in successfully. One of which is how to collect the first month’s rent and the security deposit.  A few steps make this process easy for both you and your new tenant. Let’s cover a few simple tips:

#1 Understand State Laws Regarding Rent Payments and Security Deposits

Landlord-tenant laws are different from state to state. Research the law for your specific state – which will provide rules for how to handle rent payments, security deposits, and move-in fees.

Once you are familiar with the legal side of things, establish lease terms. Your written lease agreement will be based on the laws for your state, and will provide clarity for your tenant on what is expected.  It will also share your responsibilities as a landlord. For example, a very common lease term is around rent payments. Rent payments are typically due on the same day of the month, on a recurring basis, which will be identified in the lease. Grace periods for rent payments will be based on the laws of your state – for many states the grace period is 5 days. This means your tenant will have up to 5 days from the rent due date to pay their rent without incurring a late fee.

When should you collect the first month’s rent? Most landlords will collect rent after the lease is signed, but before the property keys are given to the tenant. Your lease will specify this arrangement, making it easy for both parties to know expectations.

What about the security deposit? Again, your lease terms should stipulate that the first month’s rent and security deposit are required prior to receiving keys to the apartment. Something to note, some state laws require security deposits to be placed in a separate interest-bearing account. Additionally, many state laws indicate that a security deposit cannot be more than one month’s rent, otherwise, the landlord is required to pay interest to the tenant on the security deposit amount. Laws also govern how and when to return security deposits, and valid reasons for keeping part of the deposit.

When collecting the first month’s rent and deposit, make it easy for your new tenant by setting up electronic payments. Landlord software, such as Schedule My Rent, enables landlords to invite new tenants to create an account, and automatically pay rent monthly on the date rent is due. This makes it easy for both landlord and tenant to know that rent is paid, with no need for paper checks, PO boxes, and bank trips.

Can security deposits be paid the same way? Yes. With Schedule My Rent, it’s easy for tenants to pay their security deposit, as well as other payments, such as one-time utility payments, etc.

#2 Discuss Rent and Security Deposit Amounts Before Signing a Lease 

It’s important to ensure your new tenant is aware of the rent amounts and deposit requirements early in the process. Our landlords find that by communicating the rent amount in property marketing sites, such as Zillow, it’s easier to find tenants who can afford the rent payments. However, it still makes sense to communicate the rent and security deposit amounts again before you sign the lease agreement.

First month’s rent and security deposits are typically paid before a tenant moves in. Following are a few steps as you work with your new tenant:

• Discuss lease terms with your tenant – most landlords have a standard boilerplate lease agreement, which is reviewed with new tenants

•  Sign the lease agreement which will outline the rent and security deposit amount

• Arrange electronic rent/deposit payments to collect rent online, such as Schedule My Rent

•  Collect the first month’s rent and the security deposit (as separate payments)

•  Provide your tenant with keys

• Arrange a move-in date

#3 Establish Recurring Online Rent Payments 

Our landlords find the easiest way to collect rent is electronically. Many of our landlords have tried accepting cash and paper checks. Both work, but require more time and energy from both the landlord and the tenant. With cash, landlords take time out of their busy schedule to meet tenants to accept the cash payment in person. This carries a bit of uncertainty with it – has the landlord accurately recorded the amount?  With paper checks, the tenant must write the check, mail the payment, and wait to determine if the check is received and when it is cashed. For the landlord, paper checks typically involve a trip to the PO box to pick up payment envelopes, a trip to the bank to deposit the checks, and manual entry of the payments into a manual tracking tool.

Why not make it easy to take rent payments? With electronic payments, tenants are able to schedule a recurring bank transfer on the day rent is due. When using rental property software, like Schedule My Rent, the tenant receives a receipt of payment via email, and can log-on to the system to see payment receipt. For the landlord, payments are automatically received in their account, no need for trips to the post office and bank. Schedule My Rent provides an industry-leading dashboard, enabling landlords to easily see the status of all rent payments across their full portfolio of properties.

Schedule My Rent easily enables tenants to: 

•   Pay directly from their bank account 
•  Receive rent reminder emails
• Set up automatic rent payments, and if desired, approve payments
•  Pay late fees
• Split payments between roommates

      #4  What About Pro-Rated Rent Payments?
Prorated rent may be appropriate if a tenant moves into your apartment for a portion the month. For example, if the tenant moves into the apartment on September 15, approximately half of the rent payment is due. Prorated rent may also apply if your tenant leaves the apartment part way through a month, if agreed to in your lease terms.

When the tenant is approved for rental, agree to a move-in date. Once the date is agreed to, provide the tenant with the prorated amount due, and formalize the payment amount and schedule in your lease agreement. Arrange to receive the prorated amount due prior to move-in, as you would with a full rent payment.

By taking a few proactive steps, landlords can simplify the expectations for first rent payments and security deposits. When both tenants and landlords know what to expect, and how to best arrange payment, both parties feel confident in the process. With Schedule My Rent’s landlord software, landlords and tenants save time and effort.