Collecting a security deposit is always a good way to protect yourself and your properties as a landlord. It can act as a cushion that minimizes the blow of potential future problems like property damage, negligence, or tenants that turn out to be unfit.
Security deposits are standard in the rental business, and this article will go into detail about what they are and why they can be incredibly important for you.
What are Security Deposits?
A security deposit is a payment made by the tenant before moving in that signifies their compliance with the terms of your lease agreement. It acts as security that the property will be upheld and in a reasonable condition when the tenantmoves out.
However, once this deposit is made, a landlord is not immediately able to spend it. As long as a tenant complies with the lease and does not cause substantial damage, that money still belongs to the tenant and must be returned when the tenant moves out. It is illegal for a landlord to use a compliant tenant’s security deposit as extra discretionary income without intending to return it.
Rather, the purpose of the deposit is to act as an incentive for the tenant to obey the conditions of a lease. In the case of a non-compliant tenant, a security deposit exists to go toward any outstanding debts.
After the deposit is collected and a tenant has moved in, landlords generally stow the money away into an interest-bearing account. Depending on the regulations of your state, the landlord may either be able to keep the accumulated interest, or they may be respondible for paying it back to the tenant. If a tenant upholds their end of the deal by paying the deposit and complying with the guidelines of the lease, your end is to ensure that the money is in a safe space and will be returned in a timely fashion when they move out.
How Much Should You Charge?
Since security deposits are designed as safety nets against any kind of damage, you should try to charge as much as you believe to be reasonable within the bounds of your market. The specific amount is at your discretion, but most states have regulations that limit how much a landlord can charge. It is obligatory to research local laws before deciding on a specific figure.
It is standard practice to charge around one month’s rent for a security deposit. As a rule, it is best to use this number as a minimum. If an emergency comes up and you are left responsible, you will be glad you charged more rather than less.
What Does a Security Deposit Cover?
As previously stated, security deposits can be used to cover necessary expenses that are introduced as a result of a non-compliant tenant who damages the property or owes money for rent.
Property damage must be considered beyond the bounds of reasonable wear and tear for the duration of the tenant’s residence. For example, the general aging of furnishings in an apartment occupied for multiple years usually does not warrant a deduction from the security deposit. However, considerable damage to windows or doors, burns, stains, or large holes in the walls are the kind of serious issues that likely signify a breach of a lease which a security deposit can help to cover.
Missing or inadequate rent payments also qualify as outstanding debts that can be covered by the security deposit. This includes any other payments that a tenant is responsible for making to you that remain unpaid when they leave, including utilities and any other amenities or services.
Depending on varying local regulations and the initial terms of your lease, you are legally entitled to some or all of the security deposit if a tenant breaks their lease. It is important to research state laws and structure your leases accordingly to ensure that kind of protection.
Conclusion
For the sake of their long-term success, it is important to protect the investments you have made in your rental properties and take every necessary step to ensure that a bad experience with a tenant does not end up costing you too much.
Security deposits are a smart precaution to take before a tenant moves in that will leave you in good shape. While they aren’t funds you can add to your budget, they are security that will help give you peace of mind and help you remain vigilant as a rental business owner.
