Whether you’re a new landlord or an experienced housing provider, understanding security deposits isn’t optional; it’s necessary. Brush up on your knowledge of security deposits with this helpful roundup article.
There is much to know about security deposits, from the laws and regulations regarding them, to how you should manage and protect tenants’ deposits, to what you can and cannot deduct from a deposit on move-out. Fortunately, this article can give a brief overview of everything you may need to know about security deposits.
Security Deposit Laws
Each state has different security deposit laws regarding their general management, when deposits can be accepted and returned, and the amounts that can be charged. You should know your state’s laws before making any security deposit rules as a landlord. Additionally, some cities will have their own laws about security deposits, especially large metropolitan areas. If you are a landlord in a city or an area known for having a lot of landlord-tenant laws, it is exceptionally important to research these laws in detail and communicate with an attorney versed in landlord-tenant law to develop your lease and policies.
How much you can charge for a security deposit varies depending on your state. Some states limit the amount you can charge for a security deposit, typically one month’s rent, while others have no limit at all. Security deposit return timelines are also heavily dependent on your state, but best practice is to return them and/or the itemized list of deductions as soon as is reasonably possible. Most states require security deposits to be returned within 14 to 45 days.
Learn more: Security Deposit Laws, Limits & Deadlines – State Guide for Rentals
How to Manage Security Deposits
Security deposit management is essential as a landlord, and the process depends on your state. Depending on your role and your state laws, you may need to create a trust account for these security deposits, and some locations require you to pay your tenants back the interest on the deposits. You should study your state’s laws on this subject thoroughly before taking any actions regarding security deposits.
Security deposit management should be thorough, careful, and developed within your local laws. Be sure to document any security deposits paid with receipts, and any deductions on move-out should also be thoroughly documented.
Learn more: Rental Property Management Trust Accounting Primer
What You Can Deduct From Security Deposits
Security deposit deductions are necessary in cases where a tenant damages the property they rent, whether it is found during their time there or after the move-out. As such, it is essential that you understand what you can and cannot deduct from a security deposit.
First, you must understand what constitutes wear and tear versus damage. You can deduct from security deposits for damage, but not for wear and tear. Examples of damage include tenants repainting, major holes in walls, water damage, and stained or burned carpets. Wear and tear, however, includes examples such as worn carpets or wood flooring, and small dents or minor damage to paint and walls, such as holes from nails or thumbtacks used to hang photos or dents from door handles. This is not a comprehensive list, but it can offer a starting point to understand the difference between damage and normal wear and tear.
When considering what could be damage, think about your own home. What damage has your home accrued in your time living there, and is it reasonable to consider that typical wear and tear? You should also consider the lifespan of your carpets, blinds, and appliances, as it may not be reasonable to deduct from a tenant’s security deposit for a carpet that is past its life expectancy or plastic blinds that have been damaged after years of occupancy. Develop an understanding of the laws you fall under and how they apply to your circumstances, then endeavor to create a defined list of what you consider damage for security deposits. This may not be comprehensive, but it can be a useful set of guidelines to work with.
Learn more: When Can a Landlord Deduct From My Security Deposit?
What to Do if The Deposit Doesn’t Cover The Damage
If the security deposit provided isn’t enough to cover the cost of repairing or replacing any damaged property, communicate with your tenant. This situation is uncommon, but it does happen sometimes. Document these additional repair costs, then send an itemized statement of the costs and how they exceed the deposit to the tenant’s new address. This should be enough to have it paid, but if not, you can consult a lawyer to get that money back.
Learn more: Common Causes of Damage in Rental Units
Final Thoughts
Much of understanding security deposits comes down to understanding your specific state’s laws. Every state is different, so doing your research is essential. When equipped with enough information on how to handle security deposits, you can make this management process significantly easier as a landlord or property manager.
