It would seem that of the many aspects of managing a rental property, the security deposit is the simplest. However, there is still much that a Morrisville property owner has to learn about handling a tenant’s security deposit correctly. Unlike a rental payment, a security deposit is not part of your investment income. Instead, there are rules for accepting, depositing, and reimbursing security deposit funds legally. It is also important to know how much you can charge and what you can legally and ethically use the security deposit to pay for when the tenant moves out. Here are some of the basics of security deposits that can help your property handle them from the moment you receive them to when you return them.
Determining How Much to Charge
Before even advertising your rental, a rental property owner has to first set an amount for a security deposit. Many states leave it to the landlord to decide this figure. There are, however, limits to how much you can charge, so study your state and local laws first before finalizing a number. It is a common practice to ask the tenants for an amount similar to one month’s rent. If applicable, you can also ask for a cleaning deposit or a pet deposit. Researching on rates other landlords in your area are charging will help in keeping your rental rates competitive. A high-security deposit could repel potential tenants.
Handling Security Deposit Funds
When it comes to handling security deposit funds that you have received, it is important to know what your state says about where to keep them. Some states require landlords to keep the security deposit in a separate, interest-bearing bank account. Other states allow landlords to choose among certain options for keeping the funds. Wherever you may live, you should have careful records stating where the funds are held and be careful not to spend them 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. The most usual one is to pay for any repair of damages to the property beyond normal wear and tear. A broken appliance, a big hole in the wall, or excessively stained carpet maybe some of the ethical reasons for you to keep a tenant’s security deposit. You should note, however, that if that carpet is more than seven years old and was to be replaced for the next tenant anyway, it is illegal to withhold a portion of the security deposit to cover the replacement.
Other ethical reasons to keep some or all of a tenant’s security deposit include cleaning costs, unpaid bills, and in some cases, a broken lease or nonpayment of rent. Bear in mind that some states don’t allow landlords to withhold security deposit funds to settle unpaid fines or late fees, so be sure to check the regulations in your location.
Security Deposit Refunds
Once your tenant moves out, you need to know how much of their security deposit should be refunded. If the tenant has complied with all the terms of the lease, the landlord’s responsibility is to return the refundable amount of the security deposit to the tenant in its entirety. In most states, landlords are given 30 days or less to issue the refund. If you plan to withhold any part of the security deposit, make sure it comes with an itemized list of the repairs that were paid for with the funds.
One of the best practices of rental property management is providing clear communication to your tenants of any funds withheld so as to avoid misunderstanding or legal action. This should be done regardless of state requirements. Also, if a property owner withholds the security deposit or an accounting record with a bill for amounts exceeding the deposit longer than the timeline permitted by law, that property owner can be held liable 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 a lot more complicated than they first appear. This is why rental property owners bank on the expertise of the professionals at Real Property Management Raleigh. Our Morrisville property management professionals are well versed in the laws in your state. They can help you handle not only your security deposit and rent in an ethical and legal manner but other interactions with your tenant as well. Would you like to learn more? Contact us online or call at 919-481-0008 today!
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