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Author: Mark Ainely | Partner GC Realty & Development & Co-Host Straight Up Chicago Investor Podcast
For new real estate investors entering the Chicago rental market, whether you’re considering a two-flat in Logan Square, a condo in Hyde Park, or a courtyard building in Rogers Park, one of the earliest financial decisions you’ll face is whether to collect a security deposit or a non-refundable move-in fee from your tenants. While these two options may appear interchangeable at first glance, they are treated very differently under Chicago’s Residential Landlord and Tenant Ordinance (RLTO). The choice you make has significant implications for compliance, risk exposure, tenant acquisition, and long-term cash flow.
This article will walk you through the history and requirements of the RLTO, highlight the pitfalls of security deposits, explain why move-in fees have become the market standard, and show you how to structure them legally and strategically across Chicago. If you are in the Chicago suburbs like Naperville or Schaumburg this does not affect you and you can proceed collecting the standard one months rent for a security deposit.
A Brief History of the RLTO
Chicago’s Residential Landlord and Tenant Ordinance (RLTO) was enacted in 1986 as a tenant protection law, born out of decades of disputes between landlords and renters in the city. The RLTO was designed to create a balanced framework for rental housing, but its provisions lean heavily toward tenant protections, especially around security deposits. You hear the term “a few bad apples ruin it for the rest” and that is exactly what happened with some bad actors being slum lords.
Over the years, the RLTO has been amended several times to expand penalties and clarify obligations. Today, compliance is not optional or flexible. Even a small mistake, like forgetting to provide a proper receipt or failing to pay interest on time, can expose landlords to damages equal to twice the deposit plus attorney’s fees. Because of this, security deposits in Chicago have become one of the largest sources of landlord litigation.
For new investors, whether you’re managing a vintage three-flat in Lincoln Park or a modern high-rise condo in South Loop, understanding this background is critical: the RLTO is enforced aggressively in tenant-landlord disputes, and judges consistently side with tenants when landlords mishandle deposits.
The Compliance Burden of Security Deposits
At first glance, security deposits appear to make sense. They give landlords financial protection against unpaid rent or damages beyond normal wear and tear. But in Chicago, the compliance requirements make deposits a high-risk strategy.
Under the RLTO, landlords who collect security deposits must:
Provide a written receipt for the deposit with specific required details.
Hold the deposit in a separate, federally insured bank account in Illinois.
Disclose the name and address of the financial institution where the deposit is held.
Pay annual interest on deposits held for more than six months, at rates published by the city each year.
Return the deposit within 45 days of move-out, with itemized deductions (if any) provided within 30 days.Avoid commingling deposits with operating funds.
Failure to follow any of these rules, even unintentionally, can trigger statutory damages. For example:
If you forget to pay interest on a $1,500 deposit after one year, a tenant could sue and win $3,000 plus attorney’s fees.
If you misplace or misstate account details, the entire deposit becomes subject to penalty.
For seasoned landlords with meticulous compliance systems, these risks are burdensome but manageable. For new investors security deposits can quickly become a legal landmine.
The Rise of Non-Refundable Move-In Fees
In response to the risk and hassle of deposits, Chicago landlords began shifting toward non-refundable move-in fees over the last two decades. This trend aligns with both RLTO compliance strategy and renter preferences.
Unlike deposits, move-in fees are not regulated as tenant funds under the RLTO. That means:
You are not required to hold them in a separate account.
You don’t have to pay interest.
You don’t have to return them after move-out.
Instead, move-in fees are treated as non-refundable charges, essentially a cost of entry into the property. The only restriction is the maximum fee allowed under Chicago law: up to 49% of one month’s rent.
Most landlords set fees in the 25–35% range of monthly rent. This balance keeps units competitive while still providing upfront cash flow. For example:
On a $2,000/month unit in Lincoln Park, a 30% move-in fee = $600.
Compare this to a typical deposit of one month’s rent = $2,000.
Tenants see the difference immediately. A move-in fee represents a lower financial hurdle at lease signing, making your property accessible to a wider applicant pool, whether they’re students in Hyde Park, young professionals in West Town, or families in Englewood.
Market Expectations in Chicago Today
In today’s Chicago rental market, tenants expect to pay a move-in fee rather than a security deposit.
Consider the financial psychology:
A tenant weighing two apartments, one in Rogers Park with a $600 non-refundable fee, the other in Edgewater with a $2,000 deposit, will likely choose the first, even if monthly rent is the same.
Deposits tie up tenant cash for the entire lease term, while move-in fees feel more like a one-time cost of moving.
This shift in tenant expectations gives landlords who use move-in fees a competitive advantage in marketing their units. You can fill vacancies faster, reduce tenant objections, and avoid disputes at move-out about deposit deductions.
The Cash Flow Advantage of Move-In Fees
From an investor’s perspective, move-in fees also offer cash flow benefits.
With a security deposit, you collect money but must return it later (often with interest). With a move-in fee, the money stays in your account permanently. This creates:
Immediate, usable income that can offset turnover costs like painting or cleaning.
Simpler accounting, since you’re not holding tenant funds in trust.
Fewer disputes, since tenants know upfront the fee is non-refundable.
While the fee may not cover major damages or long-term unpaid rent, investors can mitigate those risks through other tools, such as requiring renter’s insurance, strict tenant screening, and clear lease language.
Structuring Move-In Fees Correctly
To maximize the benefits while staying compliant, new investors should follow best practices when implementing move-in fees:
Stay within legal limits: Never exceed 49% of monthly rent. The 25–35% range is both legal and market-friendly.
Clearly disclose in the lease: The lease should state that the fee is non-refundable, the exact amount, and when it is due.
Avoid combining fees with deposits: If you collect a move-in fee, don’t also take a security deposit, it reintroduces RLTO compliance risks.
Be transparent with tenants: Explain that the fee covers administrative and turnover costs, and emphasize that it replaces the burden of a large deposit.
Standardize your process: Apply the same structure consistently, whether you own a single condo in South Loop or a six-unit in Uptown.
Why Security Deposits Are Disappearing in Chicago
Security deposits haven’t disappeared entirely, but they are now the exception rather than the rule. Landlords who continue using them often do so because they are unaware of RLTO penalties, reluctant to adapt, or operating in neighboring suburbs where rules are less strict.
Inside Chicago city limits, and across its diverse 77 neighborhoods, the trend is clear: move-in fees dominate the market. The combination of legal risk, administrative hassle, and tenant expectations has made security deposits a losing proposition.
For new investors, adopting move-in fees from the start ensures you avoid costly mistakes and align with the current rental landscape.
Partnering with Experts for Success
Navigating the RLTO as a new investor can feel daunting, and move-in fees are just one piece of the compliance puzzle. Leasing, tenant screening, rent collection, and maintenance all require systems that align with Chicago’s unique regulations.
That’s where professional property management makes a difference.
At GC Realty & Development, we specialize in helping investors succeed in the Chicago market by implementing best practices that reduce risk and maximize returns. From structuring move-in fees to full-service property management, our team ensures your investment operates efficiently, legally, and profitably, whether your portfolio includes units in Pilsen, Rogers Park, or anywhere among Chicago’s 77 neighborhoods.
Conclusion
For new investors in Chicago, the choice between security deposits and move-in fees isn’t just about preference, it’s about compliance, risk management, and market competitiveness.
Security deposits carry heavy legal risk under the RLTO, with strict requirements and costly penalties for mistakes.
Move-in fees, when structured properly, are legally sound, market-friendly, and provide immediate cash flow advantages.
By embracing non-refundable move-in fees, you not only protect yourself from RLTO pitfalls but also position your rentals to attract more tenants and generate stronger returns, whether your properties are in Englewood, Lincoln Park, or anywhere in between.
Before you implement these strategies, consider consulting with experts who know the Chicago market inside and out. Connect with GC Realty & Development today to ensure your investments are built on a foundation of compliance, professionalism, and long-term success.
Don’t Want To Go At This Alone?
We’ve shared a lot of information here on investing in real estate locally in Chicagoland. If you live outside the area, it may seem overwhelming for those wanting to invest in the Chicago market. But we really just look at it as a team sport.
Who’s on your investing team? Do you even have a team? GC Realty & Development, LLC has a dedicated team of professionals willing to share decades of experience in all facets of real estate investment. We handle everything from brokerage, leasing, and property management. Whether you hire us or not, we’re happy to provide our resources and expertise.
What gets me up in the morning and keeps me going 12 hours a day is the ability to add value to local area investors in Chicago and beyond! Those who connect with me often hear me say that our goal is to bring value to everyone we come in contact with.
We hope that in return, they will one day hire us for our tenant placement or property management services, refer us to someone they know, or leave a review about our services. We would clearly love all three; however, we’re happy whenever we get the opportunity to help!
Reach out today!
Partner / Co-Host of Straight Up Chicago Investor Podcast
