Skip to Content

Security Deposits 101

Cash Being Put into a House Piggy BankOne of the aspects of rental property management that seems easy is the security deposit. However, Lusby property owners need to know a number of things pertaining to handling a tenant’s security deposit correctly. 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. You also have to know how much you should charge and what you can legally and ethically use the security deposit to pay for the moment your tenant moves out. This article lays out the basics of security deposits so you can be guided in handling them from start to finish.

Determining How Much to Charge

Before advertising their rental for the first time, rental property owners have to decide on how much of a security deposit to ask for. There are many states that leave this decision up to the landlord. However, there can be limits to how much you can charge, so you should check your state and local laws before settling on a figure. An amount similar to one month’s rent is usually requested from most tenants, plus applicable cleaning deposits or pet deposits. You can research and compare what other landlords in your neighborhood charge so you can maintain a competitive rental rate. A steep security deposit could discourage potential tenants.

Handling Security Deposit Funds

After receiving the security deposit funds, you have to know the rules in your state about where to keep them. Some states require landlords to keep the security deposit in a separate, interest-bearing bank account. Still, others let landlords decide where to keep the funds. No matter which state you live in, you must keep careful records that show where the funds are held. You should also not spend them except when 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. Usually, it is to pay for repairs for damage to the property 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 due for replacement in preparation for your next tenant anyway, it is illegal to use the security deposit to pay for the replacement.

Other ethical reasons for keeping a portion of a tenant’s security deposit include cleaning costs, unpaid bills, or 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

As soon as your tenant moves out, you will have to calculate how much of their security deposit will be refunded. If the tenant has satisfied all the terms of the lease, it is the landlord’s responsibility to refund the entire amount of the security deposit. Most states have prescribed a 30-days-or-less timeframe within which the refund must be issued. Any withheld portion of the security deposit must also come with an itemized list of the repairs that were paid for with the funds.

Documenting your communication to your tenant about any funds withheld is a very good practice, even if it is not required by your state. This helps avoid any misunderstanding and even legal action. In addition to that, if a property owner does not release the security deposit or an accounting record with a bill amount much greater than the deposit for longer than the period prescribed by law, that property owner could end up paying the tenant up to three times the amount of the deposit as a penalty.

So you see, security deposit issues can really be more complicated than they appear to be. This is the reason many rental owners depend on the professional help of Real Property Management Gold. Our local Lusby property management professionals have an in-depth understanding of the laws in your state. They can assist you in handling your security deposit, rent, and other matters with your tenant in an ethical, legal manner. Would you like to learn more? Contact us online or call at 301-392-2172 today!

We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.

The Neighborly Done Right Promise

The Neighborly Done Right Promise ® delivered by Real Property Management, a proud Neighborly company

When it comes to finding the right property manager for your investment property, you want to know that they stand behind their work and get the job done right – the first time. At Real Property Management we have the expertise, technology, and systems to manage your property the right way. We work hard to optimize your return on investment while preserving your asset and giving you peace of mind. Our highly trained and skilled team works hard so you can be sure your property's management will be Done Right.

Canada excluded. Services performed by independently owned and operated franchises.

See Full Details