I was thinking of taking a promissory note for a deposit. Rent is $1,100 per month and deposit would be $1,100. I could have the tenants sign a note for the $1,100 and charge $1,200 per month, $1,100 towards rent and $100 towards deposit. Or I can state it as the last rent payment be for the deposit note. This way I get tenants on a note for the deposit and if they skip on the last month I can say that the last month would be the deposit payment and garnish wages a lot easier that normal.
I know Mike (or Mikey, I thought it was funny that that guy kept calling him Mickey) will have a problem with it . But that is why I like this forum to get the good and the ugly out of brainstorming ideas.
I agree with BLL. In my properties that guy would have to pay me a double deposit instead of a note for deposit. I have found that more often than not the tenant tries to not pay the last month saying that the deposit should be used for that rent. I charge tenants that I think will be a problem 2 times the deposit to make up for that.
In my early years of investing I would let people get into my houses for part of the deposit. Of the first 9 I let do that I had serious problems with 8. This is not unusual.
If the people do not put up the deposit they have no financial motivation to treat you right. In fact, they have every financial motivation to take advantage of you.
In reality, taking tenants to court and getting their wages garnished is yough. but your logic is to basuically make sure they owe you $1100 just so you can go through hassles later to garnish?
The entire idea of screening tenants and getting a deposit is to PREVENT having problems that you have to go after garnishments, not ENCOURAGE it!!! :banghead
Getting a promissary note instead of just a promise would out you in a better position when you take them to court to get the judgement that they will never pay you.
My biggest indicator of future problems with a tenant is the inability to pay the deposits.
I’ve taken a couple of them in the past. Not the entire deposit, but maybe an extra month to pay the pet deposit and every one of them has been trouble. Not just trouble getting the rent from them, but more damage, bad attitudes, anger issues, lies (or, at least, more lies than usual). More often than not, once they are already in, you won’t ever get the deposit money they owe you.
I agree with all of the posts. it was one of those ideas that popped up after hearing about the Bond type of deposits that are starting to take root in New York and California.
so ok its month 2 - they can pay the rent - but not the extra amount that goes toward the deposit? what do you do? Do you kick out a tennant who technically paied the rent, and have to deal with getting it back rent ready and sit vacant while you get another renter? and when they move out and leave the place a mess what do you do?
If they can’t pay a deposit and first months rent its a red flag. You will never see the deposit
If you want to work with them - pro rate the first months rent.