Often thought of as a simple task, handling the security deposit is a vital part of rental property management. For property owners in Fargo, it is vital to comprehend the guidelines governing tenant security deposits. Security deposits, unlike rental payments, do not count as part of your investment income. When managing security deposits, you must follow specific rules for accepting, depositing, and reimbursing these funds.
Being informed about these rules empowers you to decide on the amount to charge and the proper use of the security deposit after the tenant moves out. In this article, we will discuss the essentials of security deposits, preparing you to handle them properly from start to finish.
How much should you charge for a security deposit?
Before advertising a rental property, owners must decide how much to charge for the security deposit. Your location may impose limits on security deposit amounts, so review state and local laws carefully before setting a figure.
Most often, the security deposit is set at about one month’s rent, including additional deposits for cleaning or pets. Compare the security deposit rates of other landlords in your area to keep your own rates competitive. Overcharging for a security deposit could repel prospective tenants.
Ethically handle security deposit funds
When you have the security deposit, understanding your state’s regulations on where to keep it is essential. Certain states require landlords to keep the security deposit in a separate, interest-bearing account, while others offer more flexibility.
Regardless of regulations, it’s fundamental to maintain thorough records of where the security deposit is held and not use it without legal documentation.
Stay responsible with tenant security deposits
Specific circumstances enable landlords to retain and utilize a tenant’s security deposit. The primary reason is to cover repair costs for damage beyond normal wear and tear. This may involve repairing a broken appliance, addressing significant wall damage, or dealing with excessively stained carpet.
Keep in mind that it’s illegal to use security deposit funds for unrelated projects if the damage isn’t due to tenants beyond normal wear and tear. Following these legal and ethical guidelines will help you become a responsible and fair landlord.
Additional ethical reasons for withholding a tenant’s security deposit include cleaning costs, unpaid bills, and occasionally, a broken lease or unpaid rent. Yet, some states don’t allow landlords to use security deposit funds for unpaid fines or late fees, so it’s essential to know your local regulations.
Refund security deposits to tenants
When your tenant moves out, you must decide how much of their security deposit to refund. The landlord must return the entire refundable security deposit if the lease terms are fully met. In several states, the refund must be processed within a specific timeframe, commonly within 30 days or less. If you intend to keep part of the security deposit, it’s crucial to provide an itemized list of the repairs covered by the funds.
Even if not required by state law, it’s a best practice in property management to clearly communicate any withheld funds to your tenant to prevent misunderstandings or legal disputes. Delays in returning the security deposit or providing an itemized bill for deductions may result in a penalty of up to three times the deposit amount.
Handling security deposits can be more complicated than it seems at first. In Fargo, rental property owners trust the experts at Real Property Management Optimum. Our local property management professionals, knowledgeable about state laws, can assist you with handling security deposits, rent, and tenant interactions ethically and legally. Contact us online or call at 320-289-4649 today!
Originally Published on June 18, 2021
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