Security Deposits
As a good-faith payment, the tenant may have to pay a security deposit. This is necessary to make sure that the property is kept in good condition, that rent is paid and that the lease agreement does not get violated. The tenant will usually receive the unutilized security deposit amount within a specified time limit, depending on the lease terms and local laws.
A security deposit helps protect landlords financially in the event that a tenant damages or terminates the lease prematurely. While a security deposit may not be required by law, it is a good idea for your state to collect one.
In addition to a security deposit, landlords can also demand the first and final months’ rent from tenants. Each payment can equal one month's rent. Rent costs cannot be covered by the rent payments for the first and last months. The terms of the lease may allow the landlord to use a portion or all the security deposit if rent is not paid or the tenant causes damage beyond what is normal wear and tear. You can also call a security deposit a damage deposit.
What Is The Best Price For A Security Deposit
One month's rent is the typical amount of a security deposit. In many states, there are restrictions on how many security deposits can be made for rental properties. To learn more about the security deposit regulations in your state, consult an attorney.
The Right Amount Of A Security Deposit
Even if your state has a limit, be careful not to charge too high.
Too high of a security deposit: This could make it difficult for potential tenants to choose between your property and a similar one that requires a lower deposit.
Too low of a deposit: If the tenant does not pay rent on time or damages your property, you could end up paying more.
Factors That Could Affect The Security Deposit Amount
Laws of the 50 states: All 50 allow security deposits. Some states have limits on how much you can charge. If you use any part of the security deposit, you'll need to provide the tenant with itemized accounts.
The most common factor is the monthly rent price The rent price of the property determines the average security deposit amount.
If your property has an expensive repair or maintenance need, you may be required to pay a security deposit.
Your competition: Set your security deposit in the same range as other nearby properties. You could lose qualified tenants if you have a higher rental deposit.
While it may seem prudent to require a higher security deposit from families with young children, this can still be considered a thorough screening process. All applicants must sign the lease agreement, date it, and pay all fees before moving in.
How Can I Make Sure The Security Deposit Is Safe?
Some states require landlords to have separate accounts for security deposits and/or obtain bonds. It is best practice to have separate bank accounts, even though it may not be required by every state. This will make it easier to track the payments of your tenants and pay taxes.
To protect against creditors, many states require an escrow trust. The money is clearly designated as non-refundable security deposits. Security deposits remain the property of the tenant. You are not the owner of the money; you are only a trustee. You must make sure that the security deposit funds are not misused, or used illegally.
What Should I Do If My Deposit Earns Interest
Some states require you to return the security deposit and any interest earned during your lease. Some states require that you return your security deposit as well as any interest earned during your tenancy. Some require you to return the security deposit and any interest accrued during your tenancy within a certain time period. For a better understanding of your situation, consult the laws in your state as well as other sources from the county and municipal governments.
When Is The Security Deposit Due Back?
Each state has its own deadlines to return security deposits. You must immediately return any unused security deposit funds. This usually takes between a few weeks and more than a full month. Once the tenant has left, the clock starts to tick.
When Is The Best Time For Security Deposit To Be Kept?
The lease agreement should state clearly which situations permit you to retain a tenant's security deposits. Otherwise, the tenant could have strong grounds against you for withholding tenant funds. However, there are many state laws that outline the reasons a landlord can withhold funds even if they are not specifically mentioned in the lease.
These are the top reasons landlords might withhold a tenant’s security deposit:
Rent arrears
Property damage that goes beyond normal wear and tears
Unpaid utilities
Removal of abandoned property - Costs
Cleaning costs
Premature termination
How Should You Handle Security Deposit Disputes?
Nearly all states require that you provide an itemized receipt in order to deposit a security deposit. The receipt should include details about the expenses you have incurred and the amount of the security deposit that was used. If the tenant disputes the receipt, they may be able to sue you. You may be required to prove that there was damage and that repairs are necessary in order to recover the security deposit.
These tips will help you avoid potential disputes over security deposits:
As a landlord, you need to be aware of your maintenance responsibilities
Use a walkthrough checklist to document all damages caused by tenants moving in or out.
Give the tenant a receipt informing them of any deductions.
