One of the aspects of rental property management that seems easy is the security deposit. However, Muskegon property owners need to know a number of things pertaining to handling a tenant’s security deposit correctly. Unlike a rental payment, a security deposit is not part of your investment income. There are certain rules you must abide by when you accept, deposit, and reimburse security deposit funds legally. Aside from knowing how much to charge, you must also know what you can legally and ethically use the security deposit to pay for when your tenant moves out. Here are some of the basics of security deposits that can help your property handle them from the moment you receive them to when you return them.
Determining How Much to Charge
The decision of how much security deposit to ask is one of the biggest a rental property owner makes even before advertising a rental. Many states leave it to the landlord to decide this figure. However, there could be a limit to how much you can charge, so it is still best to check your state and local laws before settling on a number. An amount similar to one month’s rent is usually requested from most tenants, plus applicable cleaning deposits or pet deposits. It is wise to research what other landlords charge for similar properties in your area to keep your rental rates at par. A steep security deposit could discourage 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. Still, others let landlords decide where to keep 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. Usually, it is used to pay for repairs for property damage beyond normal wear and tear. A broken appliance, a big hole in the wall, or excessively stained carpet may be some of the ethical reasons for you to keep a tenant’s security deposit. But if that carpet is more than seven years old and was due for replacement in preparation for your next tenant anyway, it is illegal to use the security deposit to pay for the 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
As soon as your tenant moves out, you will have to calculate how much of their security deposit will be refunded. If the terms of the lease have been met in full, the landlord’s responsibility is to return the entire refundable amount of the security deposit to the tenant. Most states require that the refund be issued within 30 days or less. It is also wise to include an itemized list of the repairs that were paid for with the security deposit if you need to withhold any portion of the fund.
Documenting your communication to your tenant about any funds withheld is a very good practice, even if it is not required by your state. This helps avoid any misunderstanding and even legal action. In addition to that, if a property owner does not release the security deposit or an accounting record with a bill amount much greater than the deposit for longer than the period prescribed by law, that property owner could end up paying the tenant up to three times the amount of the deposit as a penalty.
As you can see, security deposit issues can be a lot more complicated than they first appear. This is the reason many rental owners depend on the professional help of Real Property Management Investment Solutions. We have local Muskegon property management professionals who have a very good grasp of the laws in your state. They can help you handle not only your security deposit and rent in an ethical and legal manner but other interactions with your tenant as well. Would you like to learn more? Contact us online or call at 616-419-4578 today!
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