Why you MUST collect Security Deposit and 1st Month rent at time of lease signing

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Why you MUST collect Security Deposit and 1st Month rent at time of lease signing

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One of the most frequent questions I receive from novice landlords is what funds to collect at lease signing.

As fast as an Indy 500 car slams into the 3rd turn wall I respond with “Security Deposit PLUS 1st Month’s rent”.

The reasons are simple for why you should require both to be paid at once but they all congeal into one simple concept:

RISK MANAGEMENT

Successful real estate leasing is almost all about risk management and the simplest way to minimize this risk is to force the tenant to have skin in the game.  Collecting essentially 2 months rent value at time of lease signing is plenty of skin for most tenants.

It also sets the stage for the tenants to expect a certain standard of engagement with you as the landlord–you aren’t joking around with an important business transaction.

Finally, it is an excellent secondary screening method–after all, if they don’t have the funds to pay you now, how will they when life goes sideways on them and their car breaks down or any other “emergency”?

So collect the money due to you!

 

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