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Brent Williams' Apartment Blog

Thoughts, comments, and ideas about the overall multifamily industry, as well as a property-specific focus on resident retention and apartment marketing.

Is the Security Deposit an Unintended Move-Out Incentive?

I have $800 of your money, and the only way you can get it is to move out of my property.

Today’s blog is meant to be a thought exercise, rather than any type of guidance.  I’m not suggesting that security deposits are bad, good, or anything in between.  But what I do want to do is throw out the idea that they have some unintended consequences.  The concept is pretty simple:  If I have some of your money, and you can only get it by leaving my community, does that create an incentive for you to do just that?  Potentially it does.

I think a lot of factors go into that, of course, such as whether your comps have reduced or eliminated security deposits, as that would mean a net cash gain for the resident, or if the resident was looking to buy a house, where that money would go towards a down payment.  Either way, there are potential negative incentives to renewing the lease, and I think it is important to address that.

What do you all think?  Is this an issue in the renewal process?

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Excited to see a ton of great comments on this when we shared it on Facebook: https://www.facebook.com/MultifamilyInsiders/posts/10151443108685579

  Brent Williams
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For cities where there's rent control, this is a positive. Turnover is the only legal avenue to bring units back to market value. On the other hand, in California, yearly interest is paid to residents on security deposits which is usually at a higher rate than what a bank offers.

  Ray Frederick
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Brett, this is an excellent question and I think that it can definitely play a part in renewals. One way to counteract this or even spin it into a huge positive would be for a community to introduce the concept of a surety bond to the resident (in lieu of a deposit). There are many companies offering this- I don't have a clue if one is any better than another but this way the resident could "convert" the security deposit that they have into the bond and just pay the reduced fee for that and get back the rest of their deposit. The resident could receive back much of what they had originally paid as a traditional deposit! A win-win for both sides with the property retaining the resident and the resident receiving back some cash!

  PT Collins
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This year, I got the idea to use the securit deposit as a "move-out incentive." I had 2 households with serious lease violations where in the past, I would have filed evictions to get them out. Instead, I sent them an "offer."

The main incentive of the offer is that they move out by a specific date and receive their deposit back, less damages. This way, I know exactly when they will be moving and I can lease the apartment with less loss to vacancy compared to waiting on the eviction process.

It worked great. They get out sooner, I know exactly when they are leaving and they both left the apartment in decent condition.

The only negative I see is part of the offer is that I will show on their record it was an early termination of the lease for personal reasons, not a lease violation, if they sign a 30-day Notice to Vacate form. I know I am sending them off to another community to deal with, but I never get calls for rental history verifications, anyway. I had 21 move-outs last year and not one phone call verifyiing their rental history (this would be a good blog).

  Sandy Martin
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That is so interesting, Sandy. Absolutely great way to "inspire" an easy move out rather than an eviction.

  Brent Williams
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I agree, very clever!

  Rommel Anacan

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