An aspect of rental property management that appears to be simple is the security deposit. There is, however, important information a Fargo 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. This also includes knowing how much to charge as well as the legal and ethical ways you can use the security deposit as payment once the tenant moves out. This article will shed light on some of the basic information about security deposits so you can confidently handle them.
Determining How Much to Charge
Before advertising their rental for the first time, rental property owners have to decide on how much of a security deposit to ask for. 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. Most landlords require their tenants to deposit an amount equal to one month’s rent as well as any applicable cleaning deposit or 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. Asking too much for a security deposit could drive potential tenants away.
Handling Security Deposit Funds
Once you receive the security deposit funds, you have to know where your state requires you to keep them. Some states require landlords to keep the security deposit in a separate, interest-bearing bank account. Other states allow landlords to choose among certain options for keeping the funds. Wherever you may live, however, you should maintain careful records that detail where the funds are kept and make sure you do not spend them unless you have 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 to pay for repairs for damage to the property beyond normal wear and tear. Some examples where you could ethically keep a tenant’s security deposit are broken appliances, big holes in the walls, or excessively stained carpets. You should note, however, that if that carpet is more than seven years old and was to be replaced for the next tenant anyway, it is illegal to withhold a portion of the security deposit to cover the replacement.
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. Do note, however, that some states do not permit landlords to withhold security deposit funds to pay unpaid fines or late fees, so check your location’s regulations about this beforehand.
Security Deposit Refunds
Once your tenant moves out, you need to know how much of their security deposit should be refunded. If the tenant has met all the terms of the lease, it is the landlord’s responsibility to turn over the full refundable amount of the security deposit. In most states, landlords are given 30 days or less to issue the refund. If you plan to withhold any part of the security deposit, make sure it comes with an itemized list of the repairs that were paid for with the funds.
Even if your state does not require it, one good rental property management practice is providing clear communication about any funds withheld to your tenant to avoid misunderstandings or legal action. 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.
Evidently, security deposit issues can become more complicated than they seem. This is why many rental property owners rely on the expertise of the professionals at Real Property Management Optimum. We have local Fargo property management professionals who are well versed in the laws in your state. Not only can they help handle your security deposit and rent in an ethical and legal manner, but they can also assist in your other tenant interactions as well. Would you like to learn more? Contact us online or call at 320-289-4649 today!
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