One feature of managing a rental property that seems rather simple and a no-brainer is the security deposit. But the reality is there are countless things that Apex property owners have to understand to handle a tenant’s security deposit correctly. Unlike a rental payment, a security deposit is not part of your investment income. But rather, there are regulations that you ought to adhere to accept, deposit, and reimburse security deposit funds legally. You will, moreover, need to identify how much to charge and what you can legally and ethically use the security deposit to pay for once the tenant departs. In this article, we’ll review the basics of security deposits so that you can handle them correctly, top to bottom.
Determining How Much to Charge
Classified among the huge decisions that rental property owners need to make before advertising your rental for the first time is how much to ask for in a security deposit. You may be astonished to know that in many states, there is no specified amount; it is mostly up to the landlord to decide. But on the other hand, there may be limits to how much you can charge, so you should attentively examine your state and local laws prior to determining a number. Possibly the most usual amount asked of tenants is a sum that is approximately the same as one month’s rent, plus maybe a cleaning deposit or pet deposit, if applicable. It’s a great idea to do research on what other landlords in your area are charging in order to make your rental rates competitive. Asking a bit too much of a security deposit could drive potential tenants away.
Handling Security Deposit Funds
As soon as you have the security deposit funds in hand, you’ll need to determine the set of rules in your state about where to keep them. Some states require landlords to preserve the security deposit in a separate, interest-bearing bank account. But indeed, other endow landlords a range of options of where to keep the funds. Regardless of where you live, though, you should keep careful records that note where the funds are held and be aware not to spend them until you have a legal, documented reason to do it.
When You Can (Legally) Keep Security Deposit Funds
There are some specific situations that permit various landlords to keep and use a tenant’s security deposit funds. The most commonly known is to pay for repairs for damage to the property beyond normal wear and tear. For instance, a broken appliance, big holes in the walls, or excessively stained carpet may all be ethical reasons to keep a tenant’s security deposit. But, if that carpet is more than seven years old and you would have replaced it for your next tenant anyway, it is illegal to withhold security deposit funds to pay for the replacement.
Different ethical reasons to keep some or all of a tenant’s security deposit include cleaning costs, unpaid bills, and in some cases, a broken lease or nonpayment of rent. Although some states do not allow landlords to withhold security deposit funds to cover unpaid fines or late fees, and so again, ensure to grasp really well the regulations in your location.
Security Deposit Refunds
When the time comes that your tenant moves out, you will need to decide how much of their security deposit will be refunded. If the terms of the lease have been met in full, the landlord’s duty is to return the entire refundable amount of the security deposit to the tenant. This refund must be released within a definite time frame in many states, usually within 30 days or less. If you make up your mind to withhold any portion of the security deposit, it is important to include an itemized list of the repairs that were paid for with the funds.
Although your state doesn’t demand it, classified among the best practices of rental property management are to provide clear communication of any funds withheld to your tenant to avoid misunderstandings or, worse, legal action. In addition to this, if a property owner withholds the security deposit or an accounting record with a bill for amounts due above and beyond the deposit, longer than the amount of time prescribed by law; that property owner may have to pay the tenant up to three times the amount of the deposit as a penalty.
As you can see, security deposit issues can be far more difficult than they first appear. This is why a majority of rental property owners rely on the expertise of the professionals at Real Property Management Excellence. Our local Apex property management professionals have a detailed understanding of the laws in your state. They can help make certain that you handle your security deposit, rent, and other interactions with your tenant in an ethical, legal manner. Would you like to learn more? Contact us online or call at 919-827-1107 today!
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