Handling security deposits appear to be one of the easier aspects of managing one’s rental property. However, a Menomonee Falls property owner needs to know the correct way of handling a tenant’s security deposit. 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. It is also important to know how much you can charge and what you can legally and ethically use the security deposit to pay for when 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
One big decision rental property owners have to make before starting to advertise their rental is to determine how much to ask for in a security deposit. It may come as a surprise that many states don’t actually prescribe a set amount, so the landlord is left to decide for himself. 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. Usually, tenants are asked to deposit an amount equivalent to one month’s rent, and a cleaning deposit or pet deposit, if needed. It is wise to research what other landlords charge for similar properties in your area to keep your rental rates at par. Keep in mind that high-security deposit rates could turn away potential tenants.
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. Yet, others give landlords some options to choose from when it comes to where to place 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. Usually, it is used to pay for repairs for property damage 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. But, if that carpet is more than seven years old and was going to be replaced for the next tenant anyway, it would be illegal for you to withhold security deposit funds to pay for 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. Most states require that the refund be issued within 30 days or less. If you need to withhold any portion of the security deposit, make sure you have an itemized list of the repairs that were paid for with 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. When a property owner withholds the security deposit or an accounting record for amounts greater than the deposit longer than the allowable amount of time by law, that property owner may be asked to pay 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 Greater Milwaukee. Our Menomonee Falls property management professionals 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 262-309-6961 today!
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