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 Georgetown 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. This article lays out the basics of security deposits so you can be guided in handling them from start to finish.
Determining How Much to Charge
One big decision rental property owners have to make before starting to advertise their rental is to determine how much to ask for in a security deposit. There are many states that leave this decision up to the landlord. Knowing this, you should make sure to check your state and local laws if there are any limits on how much you can charge before you finalize a figure. 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. You can research and compare what other landlords in your neighborhood charge so you can maintain a competitive rental rate. If you ask too much for a security deposit, potential tenants might balk and leave.
Handling Security Deposit Funds
After receiving the security deposit funds, you have to know the rules in your state about where to keep them. Some states require landlords to keep the security deposit in a separate, interest-bearing bank account. Others let landlords choose from some options for where to secure the funds. No matter which state you live in, you must keep careful records that show where the funds are held. You should also not spend them except when you have 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. For 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. However, if that carpet is more than seven years old, and was already due for replacement for your next tenant, it would be illegal to withhold the security deposit to cover the cost of the replacement.
A tenant’s security deposit may also be used to cover cleaning costs, unpaid bills, and on rare occasions, 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
As soon as your tenant moves out, you will have to determine how much of their security deposit will be refunded. If all the lease terms have been met, it is the landlord’s responsibility to return the refundable amount of the security deposit in full. In most states, the refund has to be issued within 30 days or less. If you need to withhold any portion of the security deposit, make sure you have 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.
So you see, security deposit issues can really be more complicated than they appear to be. This is why rental property owners bank on the expertise of the professionals at Real Property Management DC Metro. Our Georgetown property management professionals are well versed in the laws in your state. They can assist you in handling your security deposit, rent, and other matters with your tenant in an ethical, legal manner. Would you like to learn more? Contact us online or call at 202-269-0303 today!
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