Always charge a security deposit when you have tenants move into your property. Avoid the “move in today with no deposit required” sales pitch because security deposits are really important. If a tenant balks at paying a deposit or wants it divided up into three different payments over a few months, I would continue looking for a better tenant. It’s always a concern if a tenant does not have the financial resources to pay for a security deposit and the first month’s rent.
What do you charge?
Our policy is to charge the equivalent of a month’s rent. So, if one of our properties rents for $1,200 per month, we are almost always going to charge a deposit of $1,200. We rarely, if ever, discount our security deposits.
Where should you store the deposit?
It’s important to set up an account where security deposits are the only thing in the there. As a professional property management company, we never want to co-mingle our owners’ money and our money. Since the security deposit is considered the tenant’s money until the end of the lease, we hold it in a separate account that only has security deposits in it. Check out your state and local laws. If it’s an interest bearing account, some states require you to provide that interest to the tenant when the deposit is returned.
How do you disperse the deposit?
Again, it’s state-driven. In Indiana, we have 45 days to return the deposit in full or provide a letter noting what deductions were made from that security deposit. If you’ve paid attention to my previous blog on wear and tear, this is where that information because extremely important. If your security deposit is $1,000 and you feel like the tenant did $200 of damage outside of wear and tear, you’ll need to refund the $800 within 45 days and provide documentation on how that $200 was spent.
Security deposits are important and there are a lot of laws surrounding them. It’s important for landlords to be up to speed on what’s happening with requirements. If you have any questions about your security deposits, or you need help setting up a system and an account for your security deposits, please contact us at T&H Realty Services, and we’d be happy to work with you.