Should I Use My Security Deposit To Pay The Rent?

Should I Use My Security Deposit To Pay The Rent?

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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