Determining How Much to Charge
Coming up with an appropriate figure for a security deposit is one of the major decisions a rental property owner has to make before advertising a rental for the first time. It may come as a surprise that many states don’t actually prescribe a set amount, so the landlord is left to decide for himself. There could be limits, however, to how much you can charge, so you have to check your state and local laws carefully before finalizing any figure. Most landlords require their tenants to deposit an amount equal to one month’s rent as well as any applicable cleaning deposit or pet deposit. Researching about what other landlords in your area charge for the similar property will help keep your rental rates competitive. If you ask too much for a security deposit, potential tenants might balk and leave.
Handling Security Deposit Funds
As soon as you receive the security deposit funds, you will have to comply with your state rules about where to keep them. Some states require landlords to keep the security deposit in a separate, interest-bearing bank account. Others give landlords options of where to keep the funds. Regardless of where you may be living, it is wise to maintain careful records of where the funds are kept. You must also not spend the funds without a legal, documented reason to do so.
When You Can (Legally) Keep Security Deposit Funds
There are a few specific situations that allow most landlords to keep and use a tenant’s security deposit funds. Usually, it is used to pay for repairs for property damage beyond normal wear and tear. Some examples where you could ethically keep a tenant’s security deposit are broken appliances, big holes in the walls, or excessively stained carpets. However, if said carpet is more than seven years old and would have to be replaced for the succeeding tenant anyway, it becomes illegal to use the security deposit to cover the cost of replacement.
Some other valid reasons to keep a part of your tenant’s security deposit are cleaning costs, unpaid bills, or a broken lease, or nonpayment of rent. Some states, though, do not permit landlords to withhold security deposit funds as settlement for unpaid fines or late fees, so be sure to comply with the regulations in your location.
Security Deposit Refunds
When your tenant moves out, you have to determine the portion of their security deposit to be refunded. If the terms of the lease have been met in full, the landlord’s responsibility is to return the entire refundable amount of the security deposit to the tenant. In most states, the refund has to be issued within 30 days or less. It is also wise to include an itemized list of the repairs that were paid for with the security deposit if you need to withhold any portion of the fund.
Even if it is not a requirement in your state, a good practice of rental property management is to always clearly communicate to your tenant any funds withheld in order to avoid misunderstandings or legal action. In the event that the property owner withholds the security deposit or an accounting record for amounts beyond the deposit longer than the period permitted by law, that property owner may be liable to pay the tenant up to three times the amount of the deposit as a penalty.
In reality, security deposit issues are more complex than they seem. Because of this, many rental property owners depend on the expert professionals at Real Property Management Republic. We have local Cypress property management professionals who are well versed in the laws in your state. Not only can they help handle your security deposit and rent in an ethical and legal manner, but they can also assist in your other tenant interactions as well. Would you like to learn more? Contact us online or call at 281-362-5001 today!