One important aspect of managing a rental property that looks as though it’s entirely simple is the security deposit. But, there are a lot of things that Troy property owners have to know in order to handle a tenant’s security deposit correctly. Unlike a rental payment, a security deposit is not part of your investment income. On the contrary, there are policies that you need to abide by to accept, deposit, and reimburse security deposit funds legally. You will, furthermore, need to learn how much to charge and what you can legally and ethically use the security deposit to pay for once the tenant leaves. In this article, we’ll study the basics of security deposits so that you can handle them well, from beginning to end.
Determining How Much to Charge
Part of the considerably big 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 amazed to discover that in many states, there is no exact amount; it is normally up to the landlord to decide. But, there may be limits to how much you can charge, so you should heedfully examine your state and local laws ahead of settling on a number. Probably the most accepted amount that can be asked of tenants is a sum that is almost the same as one month’s rent, plus maybe a cleaning deposit or pet deposit, if applicable. It’s an excellent thought to do research on what other landlords in your area are charging in order to maintain and keep rental rates competitive. Asking too much of a security deposit could drive potential tenants away.
Handling Security Deposit Funds
Immediately when you have the security deposit funds in hand, you’ll need to take in the 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, others provide landlords a range of options of where to keep the funds. Irrespective of where you live, you should keep careful records that note where the funds are held and take care not to spend them until you have a legal, documented reason to use it.
When You Can (Legally) Keep Security Deposit Funds
There are several specific situations that enable several landlords to keep and use a tenant’s security deposit funds. The most prevalent is to pay for repairs for damage to the property beyond normal wear and tear. As an example, 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, however, 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.
One other ethical reason to keep some or all of a tenant’s security deposit includes 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, be certain to check and know the regulations in your location.
Security Deposit Refunds
When your tenant moves out, you will need to pick and decide how much of their security deposit will be refunded. If the terms of the lease have been met in full, the landlord’s obligation is to return the entire refundable amount of the security deposit to the tenant. This refund must be given within a particular timeframe in many states, usually within 30 days or less. If you come up with the decision 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.
Even though your state doesn’t actually require it, part of the best practices of rental property management is to provide clear communication of any funds withheld to your tenant to avoid misunderstandings or, worse, legal action. In addition to that, 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 so much more tedious than they first appear. This is why plenty of rental property owners rely on the expertise of the professionals at Real Property Management Metro Detroit. Our local Troy property management professionals have a comprehensive knowledge of the laws in your state. They can help make sure 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 248-808-6550 today!
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