Should I Use My Security Deposit To Pay The Rent?

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Using Your Security Deposit As Rent Is A Bad Idea.

I’m in a real estate market where renters typically put down a security deposit of one month’s rent. When I tell people I’m a real estate agent, one of the most popular questions is: “When my lease ends, can I use my security deposit as my last month’s rent?”

It sounds, to most renters, like a good idea. They figure that the security deposit is really their money; that they’ve been good tenants, and it’s coming back to them anyway. But if they don’t pay their last month’s rent—and just ask the landlord to use the security deposit instead—then they have a little more cash to use to pay security deposit on the next place. For example, if you’re paying $1,500 in rent, and you just cash in your security deposit before you move, then to get the new place you only need $3,000 cash (which is your first month’s rent on the new place, plus the new place’s security deposit) rather than $4,500 cash (your last month’s rent on your current place, plus your first month’s rent on the new place, plus the new place’s security deposit).

However, it’s generally to be avoided for two reasons.

1. Your Lease Probably Prohibits It

In the eyes of most landlords, rent is rent and security is separate, and most leases are drawn up so that they can’t be mixed together. For example, I’m a landlady, and I legally have to hold my tenant’s security deposit in a separate account from where I put her rent checks.

2. Your Landlord Won’t Like It

And they’ll generally come after you for it. How? By hitting you where it hurts—your reputation. First, if you want to buy a co-op or a condo apartment someday, you might need a recommendation letter from a landlord, and you certainly won’t be getting that. But worse, many landlords will regard this as non-payment of rent and take it to housing court. Having an action against you in housing court will show up on most common background checks—like the ones that are run on you by new landlords. And in some states, if the landlords win, they get extra damages. In Texas, for example, the penalty can be up to three times the unpaid rent. Bad debts will get reported to all three credit bureaus—Experian, Equinox, and TransUnion—where they’ll hurt your credit.

So as much of a pain as it is to wait the 30 to 45 days to get your security deposit back, in terms of a personal finance move, it’s usually the way to go.

Do you have any stories of using your security deposit as your last month’s rent where it worked out? I’d be interested in hearing them! Leave a comment below.

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  • Triptie

    It seems pretty obvious that it’s a bad idea, considering the landlord disapproval and lease prohibition and all. I wonder why anyone would do it?

  • Anonymous

    I know people who have done it, but they weren’t the most responsible sorts….nCheers,nCarolinenLearnVest’s Chief Content & Community Officer

  • Guest

    I did this and it was fine. The landlord said to do and it was much easier. No drama. There’s no problem in my experience with doing this.

  • http://roscommonrealty.com Penemiller

    As a landlord, I am with you, and I applaude you for speaking out. Many people are not aware that the monies from Security Deposits are considered escrow, and are treated differently than the monthly rental payments. As you pointed out, most leases prohibit using the Secirity Deposit as last month’s rent for just this reason, and leaving with unpaid rent can seriously impact your future housing options. As the property owner, I always try to touch base personally with any tenant who gives a notice of intent to vacate to make sure that they understand how the process works, but not all leasing companies are like this. Kudos to you for keeping renters informed of both their rights and their responsibilities!

  • http://www.facebook.com/cdanzig Chris Danzig

    There are landlords (especially smaller landlords in NYC) that will do anything they can to keep your security deposit. At the end of the day here’s how is boils down for me. Obviously if you need to maintain a relationship with your landlord for any reason you should pay and pay promptly- HOWEVER… If maintaining a relationship with your landlord is not a priority AND you a concerned about their being reasonable in returning your deposit then hold on tight toy our money- At the end of the day do you want to be suing them or do you want them to have to sue you. At the end of the day its much more costly and time consuming for a landlord to bring a suit against you (and all for a few grand?) You’ve heard that possession is 9/10ths of the law – this is no exception.

  • Lyndahart246

    As a landlord I have sometimes allowed my tenent to use their security deposit towards the last month’s rent but only if the tenant has paid on time throughout the lease and has kept the property in good shape. I inspect my properties approximately once every six months.  

  • http://www.leasetalk.net/p/lease-talk.html Lease Talk

    I agree with this post!
    While you will go on to occupy many rentals in your lifetime, the landlord has only one property and he needs to take care of it and keep it at its optimum money-making best. Therefore, it is highly unlikely that an experienced Landlord will utilize the deposit to cover the monthly rent.

    Leasetalk.net

  • Kalvin

    As a landlord, this has happened to me few times. The very first time was the best learning experience which cut my potential loses in the future. Tenant asked he pay his last month rent with his deposit. Unexperienced at the time I allowed him to do so since he did pay rent on time and was fairly a good tenant. Once he moved out and during my inspection of the unit, I noticed damages caused by negligence that totaled over 6000. Only if I had that security deposit of 2400 My loss would have been minimized. Now I can only depend on a collection agency still trying to claim my money from them after 2 years.