5 Landlord Tips for Managing Security Deposits

As a landlord, security deposits are essential for our protection. More likely than not, the security deposit will be returned to the tenant when they move out, but accidents do happen. Sometimes tenants are careless with a property, and landlords are left footing the bill. Security deposits not only help with damages, but they also come in handy in case the tenant breaks their terms of a lease. It also helps pay for additional cleaning, back rent, or even a key replacement.

In other words, security deposits are essential and should be treated as such. Here are a few things to keep in mind when managing security deposits from start to finish:

1. Know The Law

Each state has its own set of laws regarding security deposits. They could be guidelines for how much you should charge for the deposit, if there are pets, or if the tenant needs extra accommodations. It’s imperative to read through your state’s laws about deposits, just in case. It will reflect poorly on you if you did not adhere to the regulations, which may be brought up in small claims court if things go south.

2. Charge The Correct Amount

If you’re a new landlord, you may be tempted to ask for less so you can attract more potential renters. However, many rental experts would disagree. If you ask for more, you’ll attract more financially stable renters who can pay for first and last month’s rent along with a more substantial security deposit. It can also be used as a buffer if the tenant leaves the property without notice.

3. Written Statement of Condition

It may seem tedious at first, but it’s pivotal to have a walk-through with your tenant before the move-in date to look through each room and discuss any issues. There may be some mild wear and tear from the previous tenant (You can include a list of possible damages: paint chips, carpet stains, damaged tile, repainting, holes in the walls). Having both a verbal and written account of what kind of condition the living space is in, along with established agreement will help solidify that you and your tenant are on the same page moving forward.

Doing a walk-through at the end of the rental contract would be beneficial as well. This could give the tenant a chance to clean up any new mess they encounter, and you both can revisit the original list and agreement together to ensure everything is wrapped up.

4. Create A Trust or Escrow Account

This should go without saying, but security deposits should not be touched. That money is a placeholder for the tenant when moving out. If you ask your bank to make a deposit account for trust or escrow fund, it will halt any use of these funds in forfeiture – just in case your company experiences any issues.

You may also consider making a separate account altogether. It’s all too easy to mix security deposit funds with other forms of income, and then accidentally spend the security deposit.

5. Explain Why Tenants Aren’t Getting Their Deposit Back in Full

Just like the detailed list you created when doing the walk-through, it’s equally important to send an itemized list of things that have been damaged since the tenant left. This can include the cost of repair quoted by the repair company.

If you do a walk-through at the end of their lease and point these things out in person, the list of damages won’t come as a surprise. The tenant will also less likely cause you trouble, as they will have a chance to fix it on their own before they officially move out.