An aspect of rental property management that appears to be simple is the security deposit. There is, however, a lot for a Bothell property owner to learn about how to handle a tenant’s security deposit correctly. Unlike a rental payment, a security deposit is not part of your investment income. In fact, there are rules that one must follow about accepting, depositing, and reimbursing security deposit funds legally. Among these are how much to charge and what you are allowed to legally and ethically use the security deposit to pay for in the event that the tenant moves out. Here is some basic information on security deposits that can help you become more confident in handling them from start to finish.
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. Surprisingly, in most states, there is no set amount. This decision is solely left to the landlord. 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. 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. Keep in mind that high-security deposit rates could turn away potential tenants.
Handling Security Deposit Funds
When you receive the security deposit funds, you will need to be very familiar with the regulations of your state about where to keep them. Some states require landlords to keep the security deposit in a separate, interest-bearing bank account. Others let landlords choose from some options for where to secure 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. The most common is to cover repairs for damage to the property beyond normal wear and tear. For example, a broken appliance, big holes in the walls, or excessively stained carpet may all be ethical reasons to keep a tenant’s security deposit. 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.
A tenant’s security deposit may also be used to cover cleaning costs, unpaid bills, and on rare occasions, 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 determine how much of their security deposit will 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. Many states give landlords within 30 days or less to issue the refund. 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 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 addition to that, a property owner who withholds the security deposit or an accounting record with a bill for amounts greater than the deposit for longer than the timeline prescribed by law could be penalized. That property owner might have to pay the tenant up to three times the amount of the deposit as a penalty.
So, in reality, security deposit issues have a lot of complexities. Because of this, a lot of rental property owners rely on expert professionals at Real Property Management Eclipse. Our local Bothell property management professionals have a very good grasp of the laws in your state. They can help make sure that you handle your security deposit, rent, and other interactions with your tenant in an ethical, legal manner. Would you like to learn more? Contact us online or call at 425-209-0252 today!
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