Move-in fees over security deposits are one of the biggest dilemmas of landlords.

In this article, you will learn how to choose between move-in fees or security deposits.

Renting out your residential property comes with risks. 

You need to find good tenants, draft a lawful lease, and secure your investment from damages. 

One of the biggest risks landlords face is property damages made by existing or outgoing renters. 

For this reason, landlords and property managers require the payment of either a move-in fee or security deposit to defray the costs of repairs and other expenses. 

Security deposits have been the preferred option by property managers when it comes to compensating for property damages caused by tenants.

But in recent years, move-in fees have increased in popularity and use in Chicago.

As an overview:

• Move-in fees are non-refundable, less costly, but not regulated, unlike security deposits. 

• Security deposits are refundable upon the tenant’s moving out so they are heavily regulated.

• Security deposits are the industry standard because they incentivize tenants to take care of the property. 

• But move-in fees are slowly gaining popularity because they involve administrative hassles in collecting and using the money for property maintenance. 

Differences of Move-In fee vs Security Deposit

Move In Fee

Move-in fees are nonrefundable and unregulated fees paid by new tenants upon the lease signing. 

It covers the costs of accommodating and processing new tenants, such as small touch ups, cleaning, changing directories and reprogramming security systems. 

They are favorable to tenants because they cost from 30% to 50% of one month’s rent. 

And they are very liquid since they don’t need to be deposited in a separate account required by Chicago laws.

For example:

• For North Center’s median rent of $2010
• The low end of move-in fees is 30% -> $2010 x 0.3 = $603
• And the high-end is 50% -> $2010 x 0.5 = $1005

   

But you run the risk of less incentive for tenants to be careful with your property. 

And should there be serious repairs needed, the move-in fee might not suffice for the repair costs. You might need to go after the errant tenants in court.

Yet they could be treated the same as security deposits according to an Illinois Appellate Court decision which ruled that a landlord would be compelled to return the move-in fee if such was operating like a security deposit. 

Security Deposit

Now the industry standard is the security deposit. 

Unlike the move-in fee, it’s refundable and also more costly. 

Tenants usually pay 1-2 months’ worth of rent. 

A tenant’s credit score can also determine the security deposit cost when the landlord runs a credit check. 

A low score could mean a higher amount owed and vice versa. 

Landlords are only allowed to use a security deposit for two situations: 

• If a tenant causes damages to the apartment beyond normal wear and tear
• If a tenant fails to pay rent or fees and owes the landlord 

Then deposit will be returned after deductions for any property damages or outstanding rent owed when the tenant moves out. 

This instills the responsibility for tenants to take care of their rented space lest they lose their security deposit. 

But this could also cause friction between landlord and tenant since tenants may not agree with your findings during a move-out inspection.

And the biggest difference between move-in fees and security deposits is regulation. 

Landlords must follow the Chicago municipal code, and hold security deposits in a disclosed, separate account in an institution based in Illinois so they can return the money to the tenant within 30 days from the end of the lease year. 

The landlords also are required to pay annual interest to the tenant on security deposit. 

If the landlord does not comply with regulations, the authorities may oblige him to give the renter up to twice the amount of the security deposit. 

So now which one should you choose? A move-in fee or a security deposit?

Which Should You Choose?

According to Domu, a small minority of landlords charge both a move-in fee and a security deposit. 

More than half of Chicago landlords listed on Domu charge move-in fees. 

Both move-in fees and security deposits are good for onboarding new tenants and securing your properties. 

But you should decide based on your experience and local regulations. 

Ensure that you have an efficient screening process for your tenants. 

This will save you a lot of headaches from legal fees. 

And the choice between fees or security deposit should depend on which one has garnered the most positive feedback from your tenants. 

Do you want to be a better landlord? Get our free market analysis report here!