It would seem that of the many aspects of managing a rental property, the security deposit is the simplest. There is, however, important information a Winter Garden property owner must 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. There are rules a property owner must follow to accept, deposit, and reimburse security deposit funds legally. You also have to know how much you should charge and what you can legally and ethically use the security deposit to pay for the moment your tenant moves out. Let us go over the basics of security deposits so you will know how to handle them properly, from receipt to refund.
Determining How Much to Charge
Before even advertising your rental, a rental property owner has to first set an amount for a security deposit. Surprisingly, in most states, there is no set amount. This decision is solely left to the landlord. 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. You can do some research on what other landlords are charging for similar properties in your area so you can keep 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. Others let landlords choose from some options for where to secure 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 common is to use it to pay for repairs for damage to the property beyond normal wear and tear. Broken appliances, big holes in the wall, or excessively stained carpet could all be ethical reasons for keeping a tenant’s security deposit. However, if said carpet is more than seven years old and would have to be replaced for the succeeding tenant anyway, it becomes illegal to use the security deposit to cover the cost of replacement.
Other valid reasons to keep part or all of your tenant’s security deposit are cleaning costs, unpaid bills, a broken lease, or nonpayment of rent. Some states, however, have regulations that prohibit landlords from withholding security deposit funds to cover unpaid fines or late fees.
Security Deposit Refunds
When your tenant moves out, you have to figure out 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. Most states have prescribed a 30-days-or-less timeframe within which the refund must be issued. Any withheld portion of the security deposit must also come 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. In the event that the property owner withholds the security deposit or an accounting record for amounts beyond the deposit longer than the period permitted by law, that property owner may be liable to pay the tenant up to three times the amount of the deposit as a penalty.
So, in reality, security deposit issues have a lot of complexities. This is why many rental property owners rely on the expertise of the professionals at Real Property Management South Orlando. Our local Winter Garden property management professionals have an in-depth understanding of the laws in your state. They can aid in handling your security deposit, rent, as well as other interactions with your tenant in an ethical, legal manner. Would you like to learn more? Contact us online or call at 407-982-2000 today!
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