The security deposit is an important aspect of managing a rental property that looks as though it’s entirely simple. However, there are many things that Troy property owners have to know 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 big decisions that rental property owners must make before advertising their 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 before 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 research what other landlords in your area are charging to maintain and keep rental rates competitive. Asking too much of a security deposit could drive potential tenants away.
Handling Security Deposit Funds
Upon receipt of the security deposit funds, it’s crucial to adhere to the regulations outlined by your state regarding their handling. Depending on your location, landlords may be required to deposit the security funds into a separate, interest-bearing bank account, while others may offer more flexibility in storage options. Regardless of the specific requirements in your area, meticulous record-keeping is essential to track the location of the funds and ensure compliance with legal obligations. It’s imperative not to use the security deposit funds for any purpose other than those permitted by law and documented in a legally binding agreement with the tenant.
When You Can (Legally) Keep Security Deposit Funds
Understanding the permissible uses of a tenant’s security deposit is crucial for landlords to navigate potential disputes ethically and legally. Several circumstances may warrant the retention and utilization of a tenant’s security deposit funds, with the most common being to cover expenses related to damages beyond normal wear and tear. Examples include repairing broken appliances, addressing significant wall damage, or remedying excessively stained carpeting.
Another valid reason for retaining a portion or all of the security deposit may include cleaning costs, unpaid bills, or instances of lease violations such as breaking the lease or failure to pay rent. Nevertheless, it’s vital to verify the specific regulations in your state, as some jurisdictions prohibit landlords from withholding security deposit funds to cover fines or late fees.
By familiarizing yourself with the legal guidelines governing security deposit handling in your area, you can ensure compliance while safeguarding your interests as a landlord and maintaining a fair and transparent relationship with your tenants.
Security Deposit Refunds
When your tenant moves out, you must pick and decide how much of their security deposit will be refunded. If the lease terms have been met in full, the landlord must 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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