Move-in fee v. security deposit

[Joey Nakayama]

As a Chicago landlord, I've noticed many local apartment listings that ask for a non-refundable move-in fee instead of a security deposit. I suspect this is partially due to Chicago's strict laws regarding security deposits.

Fellow landlords, where do you fall on this issue (especially you Chicagoans)?

And for any renters out there who have weighed these options, what do you think?

[Brie Schmidt]

@Joey Nakayama and @Larry Smet

I will let you know by Friday. Showed my Albany Park one for $1450 last night and offered a SD or $500 move in fee - Applications are due at 6pm today so still don't know what they will choose

Showing my Portage park Units tonight. $1300 SD or $500 move in and a $750 SD or a $400 move in - apps are due Friday at 6 so once we get all 3 leased I will let you know.

[Larry Smet]

Hi @Mark Ainley and @Joey Nakayama

It's hardly statistically significant but it's starting to sound like a north / south Chicago difference - not too surprising. Mark, it was great to get your take on how it is on the south side. It'll be very interesting to see what Brianna's results are.

Much appreciated

Larry

[John Weidner]

If your taking security deposits make sure your doing a move-in checklist at walk through with the tenant signing off - give them a copy of it with their signed lease

[John Weidner]

@Joey Nakayama @Brie Schmidt

How's the traffic? Are you getting a lot of interest at those prices?

[Joey Nakayama]

John Weidner I had 6 applications for my unit within a week. Originally listed for $1000 and got bid up to $1050.

[Brie Schmidt]

@John Weidner - I got 2 of the 3 rented, the last one I should know Monday

[Jonathan Pliszka]

@Brie Schmidt @Joey Nakayama @John Weidner

This thread inspired me to go the move-in fee route. $500 move-in fee and $200 pet move-in fee. $1125/mo 1bed/1 bath in Old Irving Park. Lease signed over the weekend.

[Brie Schmidt]

@Jonathan Pliszka so the building we bought in Portage Park came with tenants and they had a move in fee. One left last year and there was little damage and they kinda cleaned the place. Another just left and boy is the place a mess!! He did not even attempt to clean anything.

But on the flip side our other building is all on SD and we have tenants leaving this week to move out of state with a newborn. They emailed last night that they are not going to be able to clean and to hire a service and take it out of their security deposit. All the tenants we have had with a SD hired a professional cleaner to come in so they got their SD back in full. I guess with the move in fee it would cover the cost of a cleaner anyway - but things can get complicated when you have 3 units at once up and all need cleaning

[Brie Schmidt]

@Joey Nakayama @John Weidner @Jonathan Pliszka @Larry Smet

All 3 leased ($800 and $1300 and $1450) all 3 chose the security deposit.

I personally don't mind. I use the below lease which covers all our bases. Our bank (MB) is awesome, I just email them that I am opening new account, they send me the docs to sign and then I can mobile deposit the checks. They also pay interest 3x the minimum required. We have a tenant moving out this week and this is the first time I am not returning the full deposit. But they are moving out of state with a newborn and requested I hire a professional cleaner and deduct it from the deposit.

http://www.concreterealty.com/media/ApartmentLeaseUnfurnished_January_2014.pdf

[Larry Smet]

Thanks everyone ( @Brie Schmidt @Joey Nakayama , @Mark Ainley , @Jonathan Pliszka and @John Hauser ) for weighing in - this was really helpful.

With the exception of @Jonathan Pliszka (Jonathon - did you offer a choice to your tenant?), it seems that the general rule is in North Chicago tenants prefer a security deposit and in South Chicago they prefer a move-in fee.

Kudos to @Brianna Schmidt for the link to the Chicago Association of Realtors unfurnished lease!

Cheers

Larry

[John Casmon]

This thread is a couple years old, but I wanted to give it a bump. Curious to know where everyone stands a couple years later on this matter (especially in Chicago). @Brie Schmidt @Larry Smet @Joey Nakayama @Mark Ainley  @Jonathan Pliszka @John Hauser

Finally, decided to switch to a move-in fee instead of security deposit as I was paying for cleaning and painting almost each time a tenant moves out. Also, while I tried to follow the security deposit interest rule to the letter, I realized I was supposed to be paying interest each calendar year as opposed to when the lease ends and the SD is returned. Came across the article below which provided some clarity on the process and approach for move-in fees. 

http://www.domu.com/blog/the-decision-is-in-a-move...

[Kimberly H.]

@John Casmon thanks for posting that link, good to know

[John Yousef]

I stopped charging security deposits a couple of years ago. All of my units are on the Northside of Chicago, but since I didn't give the option of a SD to the tenants, it was an easier route to go for me. I just can't keep on top of sending all of my tenants the correct amount of interest every year...

Plus, most of my tenants are really good tenants that leave the apartment in good shape when they leave. More than 90% of the time a refund the whole security deposit to the tenants when they move out. This way, by charging a move in fee, I actually have made a ton more money doing it this way. No the touch up painting and cleaning before the new tenants are coming out of the move in fee's rather than my pocket...

It's a no brainer to go the route of a Move in fee...after all, if you get into an eviction scenario in Chicago, most likely you will be without rent for 3-6 months. What will one month security deposit do?

In the two years of renting with move in fees, I've never had an issue with my tenants not wanting to rent my unit because of not offering a security deposit option. My rents are anywhere from $1000-$3000 a month and have charge half months rent for move in fee plus $250 for pet fee. Small dogs and cats. However, I will talk to my attorney about not going over $500 for a move in fee. That's very interesting...

[Brie Schmidt]

Like JOhn, my tenants are on the northside and are good clean tenants.  So outside of paying for cleaning the most damage I was getting were a few broken blinds.  

We started offering the option of a SD or a move in fee.  Last year we had 3 new tenants and all choose a move in fee.  Going off the last 5 year I will probably pay $200 for a clean out and keep the other $200 of the move in fee.

I am still pro-SD though.  I don't think the rules of the RLTO are crazy enough to scare me out of collecting a SD.  I just send a check for their interest along with their lease renewal every year.  But I am not way more comfortable doing just a move in fee because of the lack of damage I have experienced over the past few years

[Mark Ainley]

@John Casmon Move in Fee City!  For the properties we manage in the south and west loop we offer either option but most quality tenants plan on getting there security deposit back in full so they elect to put the extra money down for deposit vs move in fee.  

For us it got to the point where we were afraid to not return any part of the deposit even if there was justification to keep it.  Once the tenant goes to the attorney it is all over and no back peddling at that point.    No matter how close you follow the rules they go after something.  

Many long term tenants we have allowed them to use deposit we might have had on file to go towards future rent and they sign off on the deposit.  When a tenant is there five plus years we would go in and clean most everything up anyways.  

[Drew Millard]

We manage about 2000 units around the Chicago area.  We only do move in fees due the overwhelming liability of holding deposits in Chicago (Suburbs are different).   Our vacancy is under 1% so I don't see the move in fee as a detriment whatsoever.   

We also ran analytics portfolio wide over a given year and found out the cashflow was actually better for the owners/us by taking a $250/person move in fee in lieu of deducting things not considered wear and tear out of the deposit.  We ran these metrics b/c we were very hesitant to move our entire portfolio over to move in fees.  Thank goodness we did b/c its not if you are going to get sued in Chicago for SD its when.   The tenants are literally becoming experts on how to sue landlords for the most minor infractions.   For example when you renew your tenant you must send them the few cents in interest yearly, if you forget something as small as a unit number in the address its 2x the deposit.  So on and so forth.  Absolutely brutal.  

So there are positive metrics on admin fees and it is very advantageous for risk mitigation.    Just my 2 cents.  

Drew

[John Casmon]

Interesting responses. 

@Brie Schmidt - what do you think changed where tenants are now selecting the move-in fee over the security deposit? I believe earlier in the thread (2 yrs ago) most of the tenants were opting for the SD.

I'm not scared of collecting a SD, especially if I have any hesitation with the tenant. However, when I'm renting to 800 credit score tenants in North Center that have been thoroughly screened, it seems like the better option is to cover the expenses associated with turning over the unit. 

Furthermore, you can still go after a tenant for damaging the unit even if you don't collect a SD through legal action and can actually be in a stronger position to recover attorney fees, at least according to this excerpt:

"A remaining question when accepting a move-in fee rather than a security deposit is how to recover repair costs when the tenant leaves the unit in a less-than-desirable condition. Although the landlord will not have a security deposit to offset the costs, he or she can still file a breach of contract lawsuit against the tenant once repairs are completed. If the landlord prevails, the trial court will award a judgment against the tenant for the repair charges, plus attorneys’ fees and court costs – which are not recoverable in an eviction action in Chicago. This judgment can then be collected through wage or bank garnishment."

[Larry Smet]

Another vote for move in fees.  It keeps it simple, reduces the legal liability of making a mistake with a SD and yields a nice initial bump to cash flow (especially nice if the property didn't have tenants due to rehab, etc.). 

Thanks to @john Casmon for bumping this thread and for @drew Millard for sharing his 2000 door analytics. (sorry @ function not working on my phone) 

[Joey Nakayama]

I'm also on the northside and have great tenants. Like @Brie Schmidt I've offered a SD or move in fee, and my recent tenants have opted for the fee. I may shift exclusively to move in fees for the cashflow and simplicity reasons others in the thread have discussed. 

[Mike Nelson]

If I go with the move-in fee vs. the security deposit, Do you collect the move-in fee and first month's rent immediately after signing the lease so the new tenant doesn't just walk away or can some be paid right before move-in?

[Michelle C.]

I am moving away from security deposits, and starting to take move in fee's.  As a small time landlord, I can't afford to be taken to court for a small security deposit mistake (and there are a lot of ways to make a mistake with this rule).  I had a family member once get hit with a 15k lawsuit over this issue, and it was enough to scare us all away from security deposits once and for all.  The way I see it, you can hopefully use that money you got as a move in fee to help pay for anything that might be wrong when the tenant leaves.  Hopefully there will be no major damages-  if there are, you can always try to bill them, or go to small claims court.  The only way I would take a security deposit in Chicago is if you have an owner-occupied building 4 units or less, because then you aren't governed by the CTRLO and the security deposit rules.  

[Nancy Curran]

I give my tenants a choice between move in fee vs. sd.  They can do one or the other, I really don't care. And tenants should really not know how to serve landlords, so that isn't a big issue. And finally, give the security back, don't fool around with wear and tear. 

[David Stefanovic]

I just rented out an apartment with a non-refundable move-in fee of $450 on the northwest side of Chicago. This is the first time I collected a move-in fee, as I have always collected security deposits in the past. Never had any issues with security deposits, but decided to go the route with move-in fees going forward. Will see how this works out for me going forward!

[Steven Muresan]

Great thoughts here BP`s.

When I bought my 6 units building, it was fully rented, with 5 Yearly leases and 1 M2M lease. We returned all the deposits. Now I`m kinda risky cause they renting without a deposit. When I'll do the extension of the leases, which will be M2M is it that the right time to ask for the move in fee? Any ideas ?

[Joey Nakayama]

@Steven Muresan I've never heard of charging tenants a fee when renewing or extending a lease. Even if you went that route, I wouldn't call it a "move in fee" since they already live there. 

Move in fees are less about mitigating risk (which is what security deposits are for) and more about covering the almost guaranteed costs of refreshing an apartment between tenants, e.g. paint touch ups, cleaning, etc. 

If you want to account for those extra expenses and are open to a yearly lease, another option would be to spread the fee you planned to charge over the course of the year as a rent increase. A $25/month bump will probably feel much less objectionable to a tenant than a $300 renewal fee they've never had to pay before, and the same amount of money will end up in your pocket at the end of the year.