Handling security deposits appear to be one of the easier aspects of managing one’s rental property. There is, however, a lot for a Hampton property owner to learn about how to handle a tenant’s security deposit correctly. Unlike a rental payment, a security deposit is not part of your investment income. Therefore, there are rules that apply to accepting, depositing, and reimbursing 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. Here is some basic information on security deposits that can help you become more confident in handling them from start to finish.
Determining How Much to Charge
Coming up with an appropriate figure for a security deposit is one of the major decisions a rental property owner has to make before advertising a rental for the first time. Many states don’t prescribe an amount and let the landlord decide what that figure will be. There could be limits, however, to how much you can charge, so you have to check your state and local laws carefully before finalizing any figure. It is not unusual for landlords to request from their tenants a sum roughly equal to one month’s rent, as well as any cleaning deposits or pet deposits. Researching about what other landlords in your area charge for the similar property will help keep your rental rates competitive. A high-security deposit could repel potential tenants.
Handling Security Deposit Funds
When you receive the security deposit funds, you will need to be very familiar with the regulations of your state about where to keep them. Some states require landlords to keep the security deposit in a separate, interest-bearing bank account. Others give landlords options of where to keep the funds. Regardless of where you live, careful records must be kept about where the funds are held as well as legal, documented reasons for spending the funds, if applicable.
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. Examples of ethical reasons to withhold a tenant’s security deposit would be broken appliances, big holes in walls, or excessive stains on carpets. 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 ethical reasons for keeping a portion of a tenant’s security deposit include cleaning costs, unpaid bills, or a broken lease, or nonpayment of rent. There are some states, however, that forbid landlords to withhold the security deposit to cover unpaid fines or late fees, so make sure you know the specific regulations for your area.
Security Deposit Refunds
When your tenant moves out, you have to figure out how much of their security deposit will be refunded. If the tenant has satisfied all the terms of the lease, it is the landlord’s responsibility to refund the entire amount of the security deposit. Many states give landlords within 30 days or less to issue the refund. If you will be withholding any portion of the security deposit, you must prepare an itemized list of the repairs that were used by the funds.
Even if it is not a requirement in your state, a good practice of rental property management is to always clearly communicate to your tenant any funds withheld in order to avoid misunderstandings or legal action. In addition to that, a property owner who withholds the security deposit or an accounting record with a bill for amounts greater than the deposit for longer than the timeline prescribed by law could be penalized. That property owner might have 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. Because of this, many rental property owners depend on the expert professionals at Real Property Management Seacoast New Hampshire. Our local Hampton property management professionals have an in-depth understanding of the laws in your state. They can help make sure 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 603-343-2202 today!
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