One factor of managing a rental property that appears to be utterly simple and manageable is the security deposit. But the truth is, there are various things that Lehi property owners should know full well to handle a tenant’s security deposit correctly. Unlike a rental payment, a security deposit is not part of your investment income. Instead, though, there are rules and regulations that you will need to comply with to accept, deposit, and reimburse security deposit funds legally. You will, as well, need to determine how much to charge and what you can legally and ethically use the security deposit to pay for once the tenant moves away. In this article, we’ll check out the basics of security deposits so that you can handle them suitably, first to last.
Determining How Much to Charge
Among the major decisions that rental property owners need to make before advertising your rental for the first time is how much to ask for in a security deposit. You may be shocked to ascertain that in many states, there is no predetermined amount; it is oftentimes up to the landlord to decide. But in reality, there may be limits to how much you can charge, so you should conscientiously review your state and local laws previous to picking a number. Quite possibly the most usual amount asked of tenants is a sum that is practically the same as one month’s rent, plus maybe a cleaning deposit or pet deposit, if applicable. It’s also the right idea to do various research on what other landlords in your area are charging in order to make your rental rates competitive. Asking quite a lot for a security deposit could drive potential tenants away.
Handling Security Deposit Funds
When you do have the security deposit funds in hand, you’ll need to know and comprehend well the policies in your state about where to keep them. Some states require landlords to keep the security deposit in a separate, interest-bearing bank account. But still, others extend landlords a range of options of where to keep the funds. Wherever you live, though, you should keep careful records that note where the funds are held and be on guard not to spend them until you have a legal, documented reason for this purpose.
When You Can (Legally) Keep Security Deposit Funds
There are quite a few certain situations that let many landlords keep and use a tenant’s security deposit funds. The most well-known is to pay for repairs for damage 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. But actually, if that carpet is more than seven years old and you would have replaced it for your next tenant anyway, it is illegal to withhold security deposit funds to pay for the replacement.
Various 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. Nevertheless, some states do not allow landlords to withhold security deposit funds to cover unpaid fines or late fees, and so again, always make certain to know well the regulations in your location.
Security Deposit Refunds
As soon as your tenant moves out, you will need to clearly decide how much of their security deposit will be refunded. If the terms of the lease have been met in full, the landlord’s task is to return the entire refundable amount of the security deposit to the tenant. This refund must be delivered within a specific timeframe in many states, usually within 30 days or less. If you decide 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.
While your state doesn’t really require it, included in the best practices of rental property management are to provide clear communication of any funds withheld to your tenant to avoid misunderstandings or, worse, legal action. On top of 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 significantly more complicated than they first appear. This is why several rental property owners rely on the expertise of the professionals at Real Property Management Utah County. Our local Lehi property management professionals have a thorough and clear understanding of the laws in your state. They can help secure 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 801-889-1517!
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