Property Management Blog

How Much Can I Charge for a Security Deposit?

System - Wednesday, August 29, 2018

A common question as well as a common discrepancy we see in marketing form DIY landlords is the amount the security deposit for their rental home. How much can you charge for a security deposit here in New Mexico? It's pretty well-defined in our Landlord/Tenant Law (Uniform Owner-Resident Relations Act). What sparked this article is from what I'm commonly seeing on places like Craigslist, or Facebook, or Trulia, Zillow. Whatever the platform may be, landlords are advertising their rentals and asking for more than one month's in rent.

What's important, is that that in and of itself is not really a problem. Where it becomes a problem is, if you don’t know the further regulations of holding a deposit more than one-month rent. Here is what you have to do if you hold an amount more than one month’s rent. You have to pay them a fair interest rate on that deposit, provide accounting, and then they're due that interest over the course of their tenancy. Seems like a really royal pain to even account for, especially when interest rates are so low, it’s just not worth the headache. We recommend just taking one month's rent as the max and stopping there.

What it also goes on to say (Uniform Owner-Resident Relations Act) is that you cannot require a security deposit higher than one-months’ rent in a under any circumstance, even providing interest, if the tenancy rental agreement is less than one year. For example, if the rent is $1,000 a month, therefor the security deposit needs to be $1,000.00 or less. Not $1,001.00, $1,050.00 or even above. I commonly see scenarios as such: rent of $1,000.00, and the landlord asking for $1,100.00 security deposit, and I just caution owners for that. It becomes somewhat of a nightmare, to hold a higher amount.

Taking this into consideration, the security deposit amount should take into account what your risk tolerance is. If they're okay with a tenant moving in, and the rent is $1,000.00 a month and they want to collect $5 - $600.00, just know you’re taking on more risk. You will have less security deposit to make the home rent ready with. We always recommend holding a security deposit equal to one-month rent. This technique provides for the most protection while keeping it clear from a regulation standpoint.

These are just some tips with collecting the security deposit and placing in your marketing while staying compliant with the state law here in New Mexico. We hope you find them helpful!



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